The BLS will release the June employment report tomorrow. Wall Street is looking for an NFP gain of 170k. That sounds about right to me:
There may be an upside surprise if the May number was low due to new college graduates not yet on the payroll during the survey week.
The Fed believes this pace of job growth would be consistent with further downward pressure on the unemployment rate, keeping them stuck between concerns they will overheat the economy by undershooting the natural rate of unemployment and that pesky low inflation number. With that in mind, Wall Street anticipates the unemployment rate holds steady at 4.3%, which would likely only provide temporary relief for the Fed. They would be more willing to slow the pace of rate hikes if the unemployment rate held steady and the pace of job growth slowed to something closer to 100k per month. If that happens by the end of the year and inflation remains tepid, I anticipate the Fed would pull back on rate hike expectations for 2018.
That said, my baseline expectation is that economic growth proves sufficient to place further downward pressure on unemployment, leaving the Fed stuck in their current conundrum.
Last but not least, the Fed will be carefully watching measures of wage growth. Wage growth softened in recent months, suggesting that the goal of full employment remains elusive. That said, some of that weakness might be the delayed impact of flattening unemployment in 2016. Hence, the impact of lower unemployment this year on unemployment might still lie ahead. Firming to accelerating wage growth would signal to the Fed that the economy is indeed at full employment as many policymakers suspect. Such confirmation would enable them to dig in their heels on expected rate hikes.
