Still Humming Along

The July employment report was strong. The pace of payroll gains slowed to 157K in July, but there were significant upward revisions to June and May totaling 59K. The recent pace of payroll gains has been unambiguously strong, with both the three- and six-month averages just above 220K per month. The same goes for aggregate hours, though there was a modest 0.2% decline in July as the average workweek edged down a tenth from its June level, which was marked up a tenth. On the wage side, it was more of the same.  Average hourly earnings increased 0.26% in July, slightly more than in June, and the 12-month change remained at 2.7%.  

The household survey data were strong as well. The unemployment rate edged down a tenth, to 3.9%,  partially reversing the two-tenth increase in June. The participation rate held steady at 62.9%, where it was a year ago. The broader U-6 measure fell three tenths, to 7.5%, not only a new cyclical low but also the lowest level since 2001. The gap between the U-6 rate and the U-3 rate (the headline measure) reached a  new cyclical low as well, and it is now just a couple tenths above its low in the previous expansion, indicating that the labor market continues to tighten. 

This report certainly provided no cause for concern for the FOMC. The labor market is strong, and jobs are being created at a robust pace sufficient to push the unemployment rate lower. At the same time, while the labor market appears tight, the moderate pace of wage gains helps to alleviate concerns about substantial overheating. 

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