The headline number of 372k jobs from the June non-farm payrolls report (Establishment survey) was stronger than expected, with private payrolls adding 381k jobs.
That headline is offset by two things, however:
-- Revisions for the prior two months were for 74k few jobs.
-- The Household survey (which is used for unemployment rates, etc.) showed job losses of 315k. Over time the two measures tend to average out.
The labor force participation rate dropped again (62.2% from 62.3%, which kept the unemployment rate stable at 3.6%). The underemployment rate dropped to 6.7% from 7.1%, which will catch the Fed's eye.
Hourly earnings remained high, with a rise of 0.3% on the month and last month's estimates were raised from 0.3% to 0.4%.
So far, there's no sign that wage inflation is slowing and traditionally, wage inflation has been a bigger driver in Fed commentary on inflation than commodity inflation.
Bottom Line
This gives the Fed justification for being hawkish.
We should see yields drift higher on the back of this report, mostly because it should unleash hawkish statements from the Fed.
I do think the wage inflation story here is important as the Fed, at least traditionally, viewed that as a driver (versus commodity, which they used to treat as more "transitory").
This is not great for risk assets that have rallied on the back of the Fed backing down.
I cannot help but think about garbage in/garbage out, where not only did the household and establishment differ significantly, but we had meaningful downward revisions.
Do I fully trust the data?
No, but it's difficult to react otherwise, since there were more than enough things to tilt an already hawkish-leaning Fed further into that camp.
This clearly leaves 75 bps as the odds on favorite at the next meeting.
I continue to be concerned that we are going to push too hard on the inflation fight, which might be why I can't help buy eye the revisions and the household data, but, in any case, the wage inflation data seems pretty convincing.
