Strong Job Growth Continues in June While Wage Gains Remain Stable

  • Nonfarm payrolls increased 372 thousand with those gains continuing to be fairly widespread. Expectations were for 265 thousand jobs and the increase was just below May’s 384 thousand jobs. The largest gains came in leisure and hospitality, in professional and business services, and healthcare. Total nonfarm payrolls are closing in on pre-pandemic levels, now just 524 thousand below February 2020. Leisure and hospitality jobs continue to lead the deficit at 1.3 million less jobs than in February 2020.


  • As has been the case for the past few months, the most watched indicator in this report involves wage growth given the focus on inflation.  In this regard, the report reflected a continuing moderation that started in April. Average hourly earnings rose 0.3% for the month, matching the 0.3% expectation but slightly below the upwardly revised May gain of 0.4%. The year-over-year pace of wage gains was 5.1% vs. 5.0% expected and down from May’s 5.3% increase. In all, wage gains remain historically above average but for a third straight month there was an easing in the YoY numbers. That should provide some solace to a Fed worried about wage-price spirals.


  • One indicator the Fed won’t particularly like is the one-tenth decrease in the Labor Force Participation Rate. It dipped from 62.3% to 62.2% as 353 thousand people left the labor force. Expectations were for it to increase one-tenth to 62.4%. Job openings remain high at 11.25 million which is nearly twice the level of unemployed persons. One way to fill those open positions and loosen the tightness in the labor market is to get more people off the sidelines and back into the labor force. The pre-pandemic participation level was 63.4% so there is still more work, so to speak, to be done here.


  • The unemployment rate remained at 3.6% for a fourth straight month, matching the 3.6% expectation, as the number of unemployed was essentially unchanged at 5.95 million. This level is little different than the February 2020 value of 5.7 million.


  • It’s an ongoing mystery that with wage gains at historically strong levels, and with job openings near all-time highs, we aren’t seeing a more significant increase in the labor force and a bigger decrease in the unemployed. It’s the third straight month where this is the case and could get talk going that a more dramatic improvement in the labor force participation rate is just not in the cards due to pandemic influences. If so, that means labor market tightness could remain in place which could result in another lift in wages down the road but it’s not evident in this report. It will, however, keep the Fed in tightening mode with a 75bps hike at the July meeting a foregone conclusion. The question becomes will it be followed by another 75bps hike in September or back down to 50bps?


  • The markets have priced in a total increase of 180bps for the remaining four Fed meetings this year. The funds rate is expected to double to about 3.5% by December. In early trading off the report, Treasuries are selling off as the stronger-then-expected read on the labor market implies a hawkish tone from the Fed will continue.

Average Hourly Earnings (YoY)

Source: Bloomberg


Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 3.11 3.19 3.26 3.38 3.60 4.06
0.50 3.10 3.16 3.20 3.27 3.46 3.95
1.00 3.09 3.13 3.17 3.23 3.37 3.82
2.00 3.12 3.11 3.15 3.25 NA
3.00 3.10 3.19 NA
4.00 3.14 NA
5.00 3.11 NA
10.00 NA

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Published: 07/08/22 Author: Thomas R. Fitzgerald