The U.S. economy generated 224,000 jobs in June driven by solid increases in education and health, business services, good producing and construction jobs. After accounting for downward revisions to previous estimates the net result for June was a total change of 213,000 jobs. Meanwhile, the unemployment rate increased to 3.7 percent as the household estimate saw an increase of 247,000 jobs, pushing the unemployment rate upward.
In our estimation the slower pace of growth in the current quarter, which we expect to come in near 1.3 percent, will provide the doves on the committee with enough of an argument to support at least a 25 basis point cut at the July 29-30 policy meeting.
While the June rebound in hiring is welcome—the increase in key components were well above trend—we nevertheless anticipate a slower pace of hiring in the second half of the year and into 2020. One year from now, monthly employment gains will likely slow to near 50,000 per month and push the unemployment rate above 4 percent as the economy heads toward what will likely be a contentious 2020 presidential election.
Despite a rebound in the pace of topline hiring—the headline number was well above the 171,000 three-month average—household survey job growth is just above 100,000 per month, which is the bare minimum needed to stabilize the unemployment rate. Looking forward, we expect job gains to decelerate to about 125,000 per month in the establishment survey with sustained weakness in the household survey. This will push the unemployment rate up heading into 2020 and supports our view that the unemployment rate bottomed at 3.6 percent and that wages posted their cyclical peak earlier this year.
Wage growth has decelerated noticeably. Average hourly earnings increased by a paltry 0.2 percent on the month and are up only 3.14 percent on a year-ago basis. Given the noise around this data series it is best to look at the three-month average annualized pace, which we think provides a better look at the underlying trend in wage growth. That trend currently stands at 2.73 percent. While that is up slightly from a downwardly revised 2.69 percent in May, both are down from 3.32 percent in February and likely reflect the slower pace of growth in the economy during the current quarter.
