June Employment Report Does Not Close Door on Fed Rate Cut, But...

The June Employment Report does not close the door on a July Fed rate cut, but it should spark market talk that it could be the last of the year if it happens.  While job growth was strong, it can be chalked up in part to volatility.  And, with the Unemployment Rate up and Average Hourly Earnings subdued, easing policy to help economic growth move back up to 3.0% would be a reasonable move.

A speedup in economic growth already may be in process, based on the composition of the +224k m/m increase in Payrolls.  Cyclical industries -- manufacturing and construction -- posted decent job gains.  And, with their workweeks up, as well, further increases in jobs in these sectors are likely.  Interestingly, jobs in residential building construction finally picked up.  And, within manufacturing, jobs in capital goods industries -- machinery and computer/electronic products -- increased, suggesting the well-advertised drag on capital spending from the US/China trade dispute may be overstated.  This may be important since the Fed has highlighted capital spending weakness in its description of the economy.  Manufacturing Output (in Industrial Production) should be up at least 0.2-0.3% m/m in June.

Despite the strong job growth -- seen in Civilian Employment as well as Payrolls -- the Unemployment Rate rose.  An uptick in the Participation Rate was responsible, as it lifted Civilian Labor Force.  Street economists who have warned of labor shortages holding back growth may have to push back the timing of such a development.  An increase in Labor Force Participation gives the economy more room to grow, thereby justifying aiming for 3.0% GDP Growth.

Another indication that labor market conditions are not overly tight is the moderate 0.2% m/m increase in Average Hourly Earnings.  It was less than calendar considerations suggested.  The y/y was steady at 3.1%.

Total Hours Worked raise the possibility of faster GDP Growth in Q319.  They rose 0.2% m/m in June, putting them 0.6% (annualized) above the Q219 average.  Similar gains over July-September would put the Q319 average 2+% above Q219, versus +0.6% in Q219.