Warm Summer Job Market

Payroll employment is expected to rise by 175,000 jobs in July, a slowdown from June but still strong and well in line with the pace of job growth so far this year. Consumers reported feeling particularly confident in July, indicating large improvements in both their current assessments of the labor market and expectations for the future. That suggests we may even see an upside surprise in the jobs numbers.

Health care and professional services jobs are expected to dominate gains. We should also see an increase in leisure and hospitality after a lull in June, although labor shortages are constraining hiring; resort areas are running short of personnel.

Construction employment is expected to post modest job gains, while manufacturing employment remains constrained. Warehousing and transportation are likely to slow following a spurt of hiring in June. We expect to see retail continue to retrench as online and big-box stores gain ground over traditional department stores and malls.

Government employment should slow after a surge in June, when the increases were at the state and local levels. Census hires by the federal government have been almost nonexistent, despite the stated need to open regional offices in July and August.

We expect to see average hourly earnings rise 0.2% for July. Earnings are likely to hold at a 3.1% pace from one year ago. Year-over-year gains hit a peak of 3.4% for this cycle in February, still well below the high-water marks of previous cycles.

Our forecast has the unemployment rate holding at 3.7%, for the right reason. We expect participation in the labor force to pick up as more of those on the sidelines throw their hats into the ring. This is an issue that the Federal Reserve has embraced. Chairman Jay Powell has made it clear that subdued inflation and a plateau in wage gains suggest there is little cost to attempting to run the economy a little hotter.