Strong report on employment and earnings for June reveals a healthier trend in the labor market

Nonfarm payroll employment rose 195 thousand in June, well above expectations, while gains in April and May were revised higher by 50 thousand and 20 thousand, respectively. Private payroll employment was also well above expectations, rising 202 thousand while previous months were revised higher.

The unexpected strength in June combined with the upward revisions to April and May reveals a much healthier trend in the labor market than previously thought. From April to June, monthly payroll gains averaged 196 thousand, well above an average of 162 thousand using the previously reported data and the Bloomberg consensus estimate for June.
We still look for a rebound in productivity to contribute to a slowing in payroll gains, but by less than we assumed heading into today’s report; we now assume gains averaging 164 thousand from July through September.

The workweek was unchanged in June, matching our expectation, while data on the self-employed were better than expected. Combined with data on private payrolls, this raised our estimates of Q2 and Q3 hours growth by four-tenths and two-tenths, respectively, to 2.1% and 1.9%.

Average hourly earnings rose 0.4% in June, two-tenths above expectations. Together with the upward revision to growth of hours, this suggests more compensation in the near term than we previously expected, but not enough to materially alter our forecast of PCE growth.

The unemployment rate was unchanged at 7.6% in June, but this reflected decent increases in civilian employment (160 thousand) and the labor force (177 thousand). After rounding, the participation rate ticked up to 63.5%.

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