Relaxing Report, Squiggly Data

Episode Summary

Executive Summary: The panel judged June’s jobs report as “relaxing” and broadly reassuring: payroll growth slowed but remained solid, unemployment edged down, and the labor market still looks like it is cooling without collapsing. The main concern was sticky wage growth, though several speakers noted mix effects and expected revisions may show the labor market is weaker than headline payrolls suggest.

Main Topics: June employment report: solid but cooling (Priority: 5/5): The group viewed 209,000 payroll gains as a healthy slowdown from prior months, with private payrolls up 149,000 and unemployment falling back after last month’s jump. They saw the report as consistent with a labor market that is normalizing rather than deteriorating. Industry composition and wage mix effects (Priority: 5/5): Healthcare, construction, and manufacturing added jobs, while retail and transportation/warehousing weakened. Speakers argued that higher-paying sectors boosted average hourly earnings, partly explaining why wage growth stayed elevated. Wage growth remains the main blemish (Priority: 5/5): Average hourly earnings rose 0.4% month over month and 4.4% year over year. The panel said this is still too high for the Fed’s inflation goal, but not re-accelerating; they expect it to ease as labor demand cools. Revisions and benchmark issues may change the picture (Priority: 4/5): The discussion emphasized that monthly revisions and upcoming benchmark revisions could materially lower recent payroll gains. The panel expects payroll data to be revised down using QCEW and household survey evidence. Supporting labor-market indicators point to slower growth (Priority: 4/5): They referenced jobless claims, labor force growth, and the possibility that payrolls are overstated versus underlying labor-market conditions. Claims around 240k–250k were framed as healthy but near a break-even threshold. Fed policy and recession odds (Priority: 4/5): The report was seen as supporting one more rate hike in July, with September less certain. The panel’s recession probabilities remained clustered around 40%–50%, though the host expressed more confidence that recession can be avoided.

Key Arguments: The jobs report was good news because it showed slower employment growth without a sharp downturn, matching the desired softening in labor demand. Headline payroll growth likely overstates underlying labor-market strength because large revisions, benchmark effects, and weaker household/QCEW data point to slower true growth. Wage growth at 4.4% is still too high, but mix effects and tighter labor demand should gradually bring it down. Government hiring and healthcare are temporarily boosting payrolls, but that strength is unlikely to persist at the same pace. Rising claims and other indicators suggest the labor market is less robust than the headline payroll number implies. The report does not materially change the Fed’s near-term path: a July hike looks locked in, while September remains less certain. Recession risk is meaningful but has edged lower; the panel still sees a slowdown scenario as more likely than a deep recession.

Data Points: Nonfarm payrolls (June 2023): 209,000 - Top-line job growth in the June employment report Private payrolls: 149,000 - Private-sector job gains in June 3-month average job growth: just over 240,000 - Average pace of hiring after revisions Healthcare payroll gains: 65,000+ - Largest private-sector contributor in June Construction payroll gains: 23,000 - Added jobs for a second straight month Average hourly earnings (m/m): 0.4% - June wage growth, a bit above expectations Average hourly earnings (y/y): 4.4% - Year-over-year wage growth after June report Average weekly hours: up 0.1 hour - First increase since January, not considered a major signal Unemployment rate: lower than May, back near 3.6% - Household survey showed a small decline after prior month’s jump Labor force growth over the past year: 2.9 million - Used to argue the labor market is absorbing a lot of new entrants Government job growth, first half of 2023: 379,000 - Public-sector hiring was unusually strong and may be distorting the headline trend Government job growth, all of 2022: 275,000 - Comparison to show how much stronger 2023 has been Weekly initial jobless claims (healthy range): 240,000–250,000 - Characterized as consistent with a well-functioning labor market Break-even weekly initial claims: 265,000–270,000 - Estimated level consistent with no job growth Unemployment rate for less-than-high-school education: 6.0% - Only educational group with a monthly increase in June Quit rate (JOLTS): 2.6% - May quit rate discussed as a possible wage-growth signal Jobs in the labor force survey vs payroll survey: household employment weaker than payrolls - Used as evidence that payroll employment may be overstated Probability of recession (panel distribution): most responses 40%–50% - 42 economists responded to an internal poll

Pivotal Quotes: "I think it was a relaxing report to read." — Dante: Opening assessment of the June jobs report "I like the word relaxed. But I get pumped when I get reports like this." — Mark Zandi: Host’s reaction to a cooler-but-solid labor report "I think we've got something." — Mark Zandi: Closing remark on optimistic CPI expectations for the following week

Implications: The labor market is slowing in a way that may help the Fed contain inflation without triggering recession. Watch for benchmark revisions, wage data, and CPI; they will shape whether July is the last hike and whether a soft landing remains intact.