Key Takeaways
Payrolls finally disappointed in June, following a run of
14 consecutive upside surprises. Considering the
downward revisions to May/April data, and excluding
strong government hiring, the weaker trend in private
sector employment growth is becoming clear.
However, hiring is not slow. The run rate of payrolls is
around 200k per month – still well above what is
required to loosen labour market conditions.
Indeed, strong employment growth and tepid
participation helped partially reverse the surprise
increase in unemployment last month. The labour
market clearly remains very tight.
This continues to drive strong wage growth. We didn’t
put much weight on the deceleration in average hourly
earnings (AHE) earlier this year, and the recent
rebound suggests this was noise rather than signal.
The June employment report is less puzzling than the
May one, with employment trends across the
household and establishment surveys matching more
closely, and hours worked rebounding to rates
consistent with slow but positive GDP growth.
Today’s report adds to the conviction that the Fed will
return to tightening in July (25bps), following a brief
June pause, with employment growth still too strong
and the labour market too tight.
This will be the final hike this cycle, if we are right that
we will see further signs of slowing activity. But if the
economy is more resilient than we anticipate, a
September raise is very likely.