Employment report: Fireworks in July

Summary

If the U.S. economy is in a recession, no one seems to have told employers. Nonfarm payroll growth in July was more than double the Bloomberg consensus, registering a 528K monthly gain. This marked the second fastest pace of job growth in 2022. Employment growth was broad-based with nearly all major sectors adding jobs in the month. Average hourly earnings data added further fuel to the fire, increasing 0.5% in the month and 5.2% over the past year. The unemployment rate fell a tenth of a percentage point to 3.5%, which matches the 50-year low reached in 2019.

Broadly speaking, the economic data are sending mixed messages at present, and the white-hot payroll numbers look increasingly out-of-line with other data points. That said, employment growth of more than half a million jobs per month and a falling unemployment rate are hard to ignore, and we suspect this data will give the FOMC the confidence it needs to push ahead aggressively with its fight against inflation. At least a 50 bps rate hike at the September 20-21 FOMC meeting seems likely at this point in time, and yet another 75 bps hike could be in store if inflation over the next two CPI reports shows no signs of trending lower.

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