Thought July 05, 2019 / 04:41 pm UTC

U.S. Jobs Data Keep the Fed Calm

By Kevin Harris, David Sloan

The employment report for June was strong enough to correct any impression that the U.S. labor market is in trouble. However, it doesn't change the outlook for Fed policy very much. At best, it relieves a bit of tension. We still see evidence of a modest cooling trend in hiring.

A total of 224,000 new payroll jobs in June gives an exaggerated impression of hiring demand. The three-month average pace of job gains, at 171,000, is right in line with the six-month pace—still quite healthy and relatively steady. 

We recently noted that a rising unemployment rate amounts to a red flag for the growth outlook. The jobless rate did rise according to June data, to 3.7% from the cycle low of 3.6%, but that rise was entirely from the addition of 335,000 workers to the labor force. We do not see that as a reason for alarm. In fact, before rounding, the rate increased to 3.666% from 3.620%. A rise of 0.046 ppt is mere noise. 

Figure 1: Average Hourly and Weekly Earnings Gains Cooled in Q2

Source: Bureau of Labor Statistics, Continuum Economics

Somewhat more worrying is the slowing in income growth, given that economic growth is now heavily dependent on household spending. Average hourly earnings were up 0.2% in June, taking the y/y rise to 3.14% from 3.15% prior. That small of a change is not a worry in itself, but the three-month annualized rise in Q2 was just 2.73%, a clear slowing from the y/y pace and a progressive slowing from the 3.05% pace in Q1. Average weekly earnings are under further slowing pressure from a slowing in hours worked. Aggregate weekly hours rose by a mere 0.6% annualized pace in Q2, down from 1.8% in Q1 and 2.7% in all of 2018. 

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I, Kevin Harris, the lead analyst certify that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further certify that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.