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.

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