Citi expects unemployment to rise to 4.4% in June jobs report

Investing.com - Against a backdrop of the S&P 500 trading near its 52-week high of $613.23, Citi forecasts the unemployment rate will rise to 4.4% in the upcoming June jobs report, which will be released next week, according to a recent analyst note. InvestingPro data shows the market has maintained a robust 4.21% year-to-date return despite labor market concerns.

The bank also projects payroll job growth will slow to 85,000 in June, reflecting a continued cooling in the labor market. Citi analysts noted that while jobless claims data indicate weak hiring, layoffs are not increasing at a concerning rate based on initial jobless claims.

Continuing jobless claims are rising, which Citi believes points to the higher unemployment rate. The bank observed that continuing claims are at higher levels relative to recent years, similar to the unemployment rate, which reached a new unrounded cycle high in May.

Citi analysts are monitoring whether initial claims break through the range of recent years in coming weeks and if continuing claims maintain their rising trend. The bank noted that last year, continuing claims began moving more sideways in July and August.

The weakening labor market conditions are expected to influence Federal Reserve policy, with Citi anticipating the Fed will resume cutting interest rates in September. The bank cautioned there is a risk that the current labor market weakening could be more sustained than in prior years.

In other recent news, Evercore ISI highlighted the resilience of the U.S. economy despite headwinds, noting that while the GDP contracted by 0.3% in the first quarter of 2021, underlying demand remained strong with S&P 500 companies reporting solid earnings at a $257 annual rate. Goldman Sachs adjusted its economic outlook for 2025, raising its growth forecast for the fourth quarter to 1% from 0.5% and reducing the probability of a recession in the next twelve months to 35%, influenced by eased trade tensions between the U.S. and China. JPMorgan reported a normalization of U.S. productivity growth, with nonfarm business productivity experiencing a 0.8% decline in the first quarter, while compensation per hour increased by 4.8%, resulting in a 5.7% rise in unit labor costs. Marko Kolanovic, a notable market analyst, expressed concerns over a potential market downturn, drawing parallels to past crises and warning of high price-to-earnings multiples reminiscent of the dot-com bubble. He suggested that the probability of a recession is very high, possibly already in progress, and cautioned about the risks posed by inflated private assets and cryptocurrencies. The ETF market saw $17.4 billion in inflows, with the U.S. leading the equity inflows, while Gold ETFs experienced their largest outflows in four years, amounting to approximately $2.2 billion. Additionally, the thematic funds and those focused on call/put writing gained popularity among investors, with Industrial and Health Care sectors attracting inflows.

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