U.S. Data Pulse: Employment review: slower payrolls point to steady Fed

Research evidence excerpt

U.S. Data Pulse: Employment review: slower payrolls point to steady Fed

UpdateM

Solid payrolls, but slower. UE rate decline exaggerated by

LFPR

Monetary policy readthrough: No overheating in the labor

market. Next test is the CPI

Less robust labor demand is consistent with our view that the Fed stays on hold this year.

It takes pressure off of the possibility of a July hike. Our outlook for inflation is more

sanguine than the Fed's, and we expect that as disinflation becomes more apparent, the

Fed remains on hold.

Slower payrolls

Payrolls slowed in June (+57k after +129k and +148k in the prior two months) and included

74k in downward revision to the prior two months. Their slower pace takes some of the

heat out of the labor market after the late-spring surge. Aggregate hours worked of

production and nonsupervisory workers showed slower labor demand. Their 0.4% m/m

decline put the 2Q increase at a 1.0% rate, below the 1.6% in 1Q but still above last year's

0.5% pace. This is still a solid pace but shows the moderation that we expected in

measures of labor demand.

Net downward revisions of 74k unwound some of the upside surprises of recent months.

They reflected -29k in goods—erasing the outsized gains in construction payrolls that had

previously been shown, and flattening out manufacturing employment — which now

shows near-zero employment growth in five of the last six months. Services payrolls were

revised down by 21k, no longer showing quite as much strength in leisure and hospitality.

Government payrolls revised away some of the outsized surge in local non-education

payrolls.

Some industry detail:

Solid goods payrolls, +10k, close to their 2Q average, with accelerating construction (after

downward revisions). Manufacturing inched up.