On the June Jobs Report

The tenth year of this business cycle expansion ends with a big payroll beat. It's reassuring after May's bust, which was revised even lower. But it is out of step with contemporaneous labor market indicators and will probably be downward-revised. Markets should not be concerned that this will put the Fed off its dovish course. This is the fourth month in the row of declining average hourly earnings year-over-year, and the unemployment rate ticked higher as the labor force expanded. This reveals considerable slack in the labor force, which we calculate could expand by 2.5 million prime-age workers before hitting maximum employment. The Fed's blame-Trump rationale for its dovish turn is durable, because for Powell to admit that "uncertainties" have cleared up would be effectively to admit that Trump was right. In the meantime, Powell knows that the inverted yield curve means "your policy's tighter than you think." So 10-year yields are right to back up, but for the wrong reason: a durably easy Fed points to higher growth.