Jobs number blows away expectations

On Friday, we received the May nonfarm payroll number, which showed that 339,000 jobs were created, blowing away expectations of 190,000. Despite the larger-than-expected number, the unemployment rate slightly increased to 3.7% from the previous 3.5% reading. Wages were up 4.3% over last year.

• This was a continuation of some of the strong economic data we saw last week
• The job market has been the focus of the Federal Reserve, with their goal being a loosening of the market in the hopes of relieving inflation pressure
• The continued strength of the job market suggests that the Fed has a reason to maintain the current interest rate levels for longer
• Many had hoped for the Fed to pause their tightening cycle in June; this number slightly lowers that probability
  

Debt ceiling plan passes the House

The House of Representatives voted to send the bill to suspend the debt ceiling and avoid a default to the Senate for a vote before it goes to the White House. The legislation effectively removes the borrowing limit until 2025, after the Nov 2024 Presidential election.

• While it was highly negotiated, the outcome seems nothing more than just kicking the can down the road
• Given default was very unlikely, it was a “tail” risk for the market
• Avoiding a default takes this potentially negative scenario off the table
• On the margin, this is positive for the market going forward
  

Student loan payments to re-start

Student loan payments have been suspended since March 2020 due to the pandemic. While the suspension was due to expire in 2022, it has been extended by the White House numerous times. As part of the debt ceiling bill, payments will begin again in September of this year.

• Student loan payment suspension served as a stimulus during the pandemic
• Given the average loan payment is $400/month, this would put a strain on lower-income consumers
• This could serve as a bit of a headwind to the economy into the end of the year
• This is unrelated to Biden’s forgiveness program for eligible borrowers, which is currently being weighed on by the Supreme Court

‍