Mixed Emotions About June Jobs Report

With peak inflation firmly in the rearview mirror, the attention of the Federal Reserve and market watchers has shifted to some degree toward the labor market side of the Fed's dual mandate. Detailed below, June's Bureau of Labor Statistics (BLS) jobs report likely did little to sway the Fed away from another 0.25% rate hike at the July Federal Open Market Committee (FOMC) meeting; even if there was some welcome relief that the BLS report did not corroborate the very hot (+497k) Automatic Data Processing (ADP) jobs report earlier last week. In the aftermath of the release of Friday's BLS report, the probability of a July rate hike had jumped to nearly 95% per the Chicago Mercantile Exchange (CME's) Fed Watch Tool (uses 30-day fed funds futures pricing data).

Establishment vs. household surveys

The BLS's establishment survey (which counts jobs) of nonfarm payrolls for June came in at 209k, which was the first below-consensus report in more than a year. In addition, there was 110k' worth of downward revisions for the prior two months, taking the three-month average down to 247k from 283k reported in May. The BLS's household survey (which counts people), from which the unemployment rate is calculated, showed employment increasing by 273k after declining by 310k in May. The household survey tends to lead the establishment survey in advance of recessions, so its stall below the April high is noteworthy. The comparison between the two is shown below. As shown via the summary bars below, over the past 15 months, household employment has contracted in five of those months, with the overall gain more than two million below the gain associated with the establishment survey of payrolls.

The survey says

monthly change