US labour market monitor: Cooling but not collapsing

Markets are growing confident that the Fed will slash rates this year, as the notion of labour markets continuing to rebalance has become increasingly pronounced lately. Despite nonfarm payrolls growing by 206k in June, exceeding consensus (190k, prior: 218k), the other parts of the Jobs Report mainly yielded cooling signals. Only 136k of the new jobs occurred in the private sector, hinting less aggressive demand for labour than previously, while data for May and April was revised down by 111k. Additionally, the unemployment rate crept up to 4.1%, as the size of the labour force continues to expand (+277k) still largely driven by foreign born workers (+235k).

That said, it must be noted that demand for labour is yet far from collapsing, affirming that overall labour markets remain solid. JOLTs job openings reversed the cooling trend, climbing slightly higher to 8.1m, indicating healthy labour demand. Following this, the ratio of unfilled vacancies per unemployed increased a little, remaining well aligned with its pre-pandemic level. Fed Chair Powell also recently shared this view, noting that the labour market is no tighter than before the pandemic, but also reminding that conditions were very strong back then.

Wage pressure remains on a cooling track as well. Average hourly earnings increased at the slowest rate in three years at 3.86% y/y in June, while monthly momentum fell to 0.29% m/m SA (prior: 0.43%). Another sign of better balance between labour demand and supply is the fact that the relative wage difference between job switchers and stayers have declined according to Atlanta Fed’s data. Indeed Hiring Lab’s wage growth tracker based on job openings has also returned to its pre-pandemic level of 3%, suggesting that labour costs are no longer rising unusually fast.

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