Economics week ahead

U.S. week ahead

Employment • Friday

Labor market conditions appear to have been little changed in July. Nonfarm payroll growth averaged 92K over the first half of the year, and we look for a similar 95K increase in July. Small business hiring plans improved in June and initial jobless claims moved lower between survey weeks, suggesting layoffs remain limited. But, not all the July labor data are pointing in a positive direction. Indeed job postings are hovering below year-ago levels, while ADP's measure of weekly private-sector payroll growth has slowed since the spring.

Tepid labor demand has been accompanied by slower labor supply growth, helping to keep the labor market in balance. We expect the unemployment rate to hold at 4.2% in July. That said, June's sharp decline in prime-age labor force participation looks difficult to square with broader economic conditions and may reflect some greater-than-usual monthly volatility in the household survey. The potential for a rebound in the labor force participation rate creates some upside risk for the unemployment rate.

Wage growth should remain consistent with a labor market that is not generating meaningful inflation pressure. We forecast average hourly earnings to rise 0.3% in July, holding the year-over-year rate at 3.5%. Taken together, the report should reinforce the view that labor demand and labor supply have cooled in tandem, leaving the labor market broadly stable.

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