Breaking the Downtrend: The Mixed Signals in U.S. Labor Data

• Services and manufacturing surveys show hiring picked up in June.

• Yet, the numbers are likely to remain below typical seasonality.

• A below average month will maintain pressure on the Fed to support growth.

The labor market may finally be finding its footing again…

This week delivers an important update on the direction of U.S. growth. On Thursday, the U.S. Bureau of Labor Statistics (“BLS”) publishes its June payroll report. Wall Street anticipates a gain of 114,000 jobs. If the number lands there, it’ll fall short of the typical June increase of 254,000 since 2015. It would also mark another year where the labor market has remained subpar out of the gate…

Historically, June’s hiring pace runs above the annual monthly average of 227,000. Recent Fed business surveys suggested hiring rebounded last month. The increase looks like hiring will come in stronger than Wall Street’s expectation. However, it’s still likely to fall short of typical seasonality.

If the national data echoes below-trend hiring, it points to slow and steady growth, but a labor market that isn’t out of the woods. That backdrop reinforces the case for our central bank to stay put and possibly cut rates next year, given a compromise is reached in the Middle East. That would support a continued grind higher in the S&P 500 Index.

But don’t take my word for it, let’s look at what the data’s telling us…

Each month, several regional Fed banks survey manufacturing and services firms to gauge business conditions. I focus on the employment and inflation components from the Dallas, Kansas City, New York, and Philadelphia districts.

• They represent roughly one-third of U.S. GDP.

• They’re released ahead of market‑moving reports like the BLS payrolls.

• The surveys offer an early read on national trends.

Today, I’m zeroing in on employment. Let’s break down the individual components before zooming out to the broader picture.

Starting with manufacturing…

• The chart above tracks the sector’s hiring trend over the past seven years.

• After a pullback in January, the sector’s hiring pace appears to be stabilizing.

• My gauge’s reading for June surged compared to May.

The more important services sector told a similar story…

• Hiring jumped, with the gauge turning more positive.

• This marked the second such result in ten months.

• Philadelphia was the only region with a negative result.

To get a cleaner national picture, I combined the manufacturing and services data into a single gauge. It’s weighted 80% services and 20% manufacturing, consistent with the U.S. employment mix. I also weighted each district by its GDP share…

• The overall hiring picture showed sharp improvement.

• In June, my combined index hit its highest level since January 2023.

• The June outcome was 6.8 compared to May’s 0.6.

Now let’s compare the combined Fed employment gauge with nonfarm payrolls for historical context. The following chart uses a three‑month rolling average to smooth volatility and highlight the trend…

• The combined Fed survey tends to lead national hiring.

• The broader trend looks to be improving.

• Employment appears to be breaking out of its downtrend.

At the end of the day, manufacturing and services employment has improved but has yet to regain its footing. If the BLS confirms this pattern on Friday, it’ll show hiring still below historical norms.

And if that happens, Wall Street should grow more confident in its expectation that the Fed is likely to leave interest rates unchanged for the foreseeable future. That would align with recent comments from policymakers. They’re concerned by the recent rebound in inflation growth yet encouraged that oil and gasoline prices are well below the May peak.

Ultimately, even lower rates by the end of 2027 would push borrowing costs down, free up cash for households and businesses, and support economic growth. That would help fuel a continued long‑term rally in the S&P 500.

Five Stories Moving the Market:

Iran said it would not meet with top U.S. envoys who flew to the region following ​the recent outbreak of hostilities; Iranian officials said the two sides must still ‌sort out the terms of a ceasefire they signed two weeks ago before they could tackle more difficult topics, such as possible limits to its nuclear program – Reuters. (Why you should care – U.S. representatives will instead meet with mediators instead of Iranian officials)

U.S. President Donald Trump has weighed a return to all-out war with Iran, but has decided to stick with diplomatic talks for now, according to U.S. officials; Trump has held multiple conversations in recent days with Defense Secretary Pete Hegseth and Chairman of the Joint Chiefs of Staff Gen. Dan Caine on more strikes – WSJ. (Why you should care – Trump is reported to have said another round of full-scale attacks could derail diplomacy)

South Korea’s exports extended their strong run in June, highlighting the durability of the semiconductor boom that is underpinning growth; exports adjusted for working-day differences climbed 59.5% in June from a year earlier, according to the customs office – Bloomberg. (Why you should care – semiconductor shipments surged nearly 200% compared to June 2025)

Big Japanese manufacturers' sentiment ​improved in the three months to June to levels unseen since 2018, according to a Bank of Japan survey; while many companies complained of rising raw material costs from the Iran war, the negative impact was offset somewhat by ​brisk demand for AI-related goods and chips – Reuters. (Why you should care – the data point to steady business spending in the second quarter, supporting Japanese economic growth)

Anthropic is releasing new software aimed at helping scientists automate research, in the hopes of reducing some of the tedious aspects of their work; Claude Science brings together a number of tools scientists commonly use, including more than 60 scientific databases – Bloomberg. (Why you should care – Anthropic is trying to make it easier for scientists to source information in addition to completing mtuli-step tasks)

Economic Calendar:

Canadian markets are closed for Canada Day Holiday

Earnings: FDS, GBX, GIS

U.K. – S&P Global U.K. Manufacturing PMI for June (4:30 a.m.)

Eurozone – CPI for June (5 a.m.)

U.S. – Challenger Job Cuts for June (5:30 a.m.)

U.S. - MBA Mortgage Applications (7 a.m.)

U.S. – ADP Nonfarm Employment Change for June (8:15 a.m.)

BoE’s Bailey (Governor) Speaks (9 a.m.)

Fed’s Warsh (Chairman) Speaks (9 a.m.)

BoC’s Macklem (Governor) Speaks (9 a.m.)

ECB’s Lagarde (President) Speaks (9 a.m.)

U.S. – S&P Global U.S. Manufacturing PMI Final for June (9:45 a.m.)

U.S. – ISM Manufacturing PMI for June (10 a.m.)

U.S. - Energy Information Administration Crude Oil Inventory Data (10:30 a.m.)

ECB’s Lagarde (President) Speaks (10:30 a.m.)

Australia – Exports, Imports for May (9:30 p.m.)