On the June Jobs Report

Another very strong jobs report in an unbroken string this year, demonstrating that the labor market is nowhere near as tight as the Fed believes it is. A tight jobs market cannot produce payroll gains like this, extending to all sectors this month. The labor force and the level of employment are below their pre-pandemic peaks, and further below the pre-pandemic trend, pointing to remaining millions who could come back to work (estimates of early retirement do not explain this away). Powell is focusing on the large number of unfilled job openings as a source of inflationary wage pressure, though he admits wages haven’t caused inflation. He believes that higher rates will eliminate openings, not jobs. Yet the “dots” from the June FOMC imply a baseline assumption that 800,000 jobs will be lost. Openings have already fallen the last two months; this has always been an early warning on recession, with openings falling ahead of actual employment. Inflation has been caused by a jump in the money supply caused by pandemic relief spending. That spending has ended, and core inflation is already falling.