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Employment Report Keeps the Fed on its Tightening Trajectory
Friday’s labor market report largely echoed the strength observed in recent months. While the unemployment rate rose by 0.2 percentage points to 4.0%, the trends in average hourly earnings and total employment were on par with those observed yearto-date. Total nonfarm payrolls rose by 213,000, in line with the 2.4 million increase in establishment jobs over the past 12 months. Additionally, revisions to April and May resulted in an increase to the prior two months’ estimates of a cumulative 37,000. In the office-using sector, job gains totaled 58,000, modestly above the 51,000 average in the 12 months through May (See Table 1 and Chart 1). There is little in the release to cause the Fed to deviate from its June projections, which call for another two rounds of tightening this year, even without near-term signs of accelerating wage pressures. Wage gains over the last 12 months are now on par with annual headline inflation, and have risen by 2.7% over the past 12 months. (Recall that the peak in earnings’ growth in the current cycle was in January 2018, where year-over-year wage gains reached 2.8%.)