Strong Jobs Data and Rising Wages Complicate Fed’s Inflation Plans

The economy added 372,000 jobs in June, but the unemployment rate was 3.6% — unchanged from May


key takeaways

  • Wages were up 5.1% in June, potentially adding to price pressures
  • The data shows that the US economy is not yet in recession territory, but threat of downturn remains

In a better-than-expected turn, the US economy added 372,000 jobs in June, according to the monthly jobs report from the Bureau of Labor Statistics released Friday. Despite the strong hiring numbers, the unemployment rate, at 3.6%, was unchanged from May. 

The data show the US economy is not yet in a recession, during which the unemployment rate averages 6.2%. The average unemployment rate in the month preceding a recession is 4.7%. 

While the jobs numbers seem to be cause for optimism, the economy is not necessarily in the clear, analysts say. 

“These job reports and their potential effects on the market…tend to be delayed in terms of economic data,” Chris Kline, chief operating officer at Bitcoin IRA, said. “For example, several large crypto companies have recently announced large job-number cuts, but those numbers most likely weren’t reflected in today’s report. This will have an effect on the market as a whole in the future.”

Wages grew 5.1% in the twelve months ending in June, according to the report, still running higher than the Federal Reserve would like. Recent rapid wage growth makes slowing inflation a challenge. 

“The promise of wages moving up is a great thing,” Fed Chair Jerome Powell said in May following the Fed’s policy meeting. “But the increases are running at levels that are well above what would be consistent with our 2% inflation goal over time.”

A 75 basis point interest rate hike in July is still expected. 

“The Fed funds futures market is pricing in a 75 basis point hike as a near 100% probability, and the Fed is doing nothing to convince them otherwise,” Jack Farley, macro analyst and host of Blockworks’ Forward Guidance podcast, said. “Atlanta Fed Chair Raphael Bostic noted that today’s labor report ‘reaffirms that the labor market is strong,’ and stated that he is ‘fully in support of a  75 basis point hike.’” 

In the initial jobless claims report released Thursday, there was little in the data that “reflects any cooling,” Nicholas Colas, co-founder of Datatrek Research, said. The four-week average of continuing claims, at 1,335,000 this week, tells a similar story, he added. 

“The 2017 – 2019 average was 1.8 million, well above current levels,” Colas said. “Fed Chair Powell wants to see labor market conditions return to their pre-pandemic norms, but the data here says we still have a long way to go on that front.”

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