Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our s each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. Welcome to jobs week — It’s that time again. The June jobs report due out on Friday is expected to show a decline from May’s very strong 390,000 to closer to 200,000, which would also be a solid number. Wall Street is looking for a “goldilocks” figure in the 200K-300K range to ease rising concerns about an imminent recession without spurring the Federal Reserve into bigger, faster rate hikes. The number takes on added importance as economic data came in decidedly mixed last week. Inflation as measured by the Fed’s favorite indicator, PCE, stayed steady on the headline at a 6.3 percent annual rate while core price increases excluding food and energy slowed to a 4.7 percent rate in May from 4.9 percent in April. But spending adjusted for inflation dipped 0.4 percent, a potentially worrisome sign about consumers’ ability to keep up with an inflation rate still far above the Fed’s long-term target of 2 percent. Manufacturing also came in soft with the ISM report notching its biggest monthly decline since Covid hit, dropping to a two-year low of 53 percent. Anything above 50 means growth, but the latest reading was the worst since June of 2020. A surprisingly soft jobs on Friday number might boost markets by taking pressure off the Fed, but it would add to concern that recession is near. Technically, it may already be here. The U.S. economy shrank by 1.6 percent in the first quarter, according to the latest revised data. And forecasts for the second quarter are for another, perhaps slightly larger, decline. That would meet one test for recession (two consecutive negative quarters). But it’s really up to the National Bureau of Economic Research to officially declare recessions. And the NBER wonks could pass on calling this a recession if the slide lasts for just two quarters because unemployment remains so low and wages are rising. On the political front, Republicans would jump all over a weak reading to blast Democrats and the White House for “Bidenflation.” Those attacks are resonating with a public that almost uniformly hates the current economy, largely because of inflation. President Joe Biden and Democrats are also rooting for something not too far above the goldilocks range. Ordinarily, they’d cheer any big jobs number. But they don’t want the Fed to feel forced to pump the brakes even harder. Analysts tell MM they don’t expect June to surprise much in either direction. “It’s very straightforward,” Pantheon Macroeconomics chief U.S. economist Ian Shepherdson said in an email. “ Homebase data are pointing to about 200K private, so about 225K headline. … “By normal standards 225K is pretty solid but everyone will get out their rulers and extrapolate to sub-100K by the end of summer, and maybe start asking whether another couple 75 [basis point] rate hikes are such a good idea. Spoiler alert, they're not.” Aaron Sojourner, a progressive economist at the W.E. Upjohn Institute for Employment Research and a former Obama administration official, emailed MM: “The biggest question is whether payroll growth continues to decelerate and how sharply. … “Outside press releases from a few dozen crypto, tech, and real estate exposed firms, there's no evidence at this point of job change going negative … Are we seeing a soft landing by stabilizing prices with minimal disruption to the real economy?” Democrats would certainly hope so. But even Fed officials themselves are not sure they can land the plane so gently.” IT’S TUESDAY — Happy (belated) birthday, America! Hope you all had a terrific holiday weekend. We celebrated with the classics: burgers, popsicles and plenty of sparklers. What’s up this (short) week? Send us your tips, ideas and other feedback: kdavidson@politico.com, bwhite@politico.com, or find us on Twitter @katedavidson and @morningmoneyben.
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