Our models suggest a gain in employment of 230,000 in June, supported by a solid increase in construction employment and continued healthy increases in service sector employment. This would leave monthly job growth running just above 240,000 over the past three months. A pace that, if sustained will, in our view, move the core of the FOMC in favour of a first Fed funds rate hike in September.
In particular, if the gauge on wage inflation (the average hourly earnings index), shows a faster pace of growth in line with the quarterly ECI (employment cost index). We would expect to see a pickup in average hourly earnings soon, as the labour market continues to tighten and a broad set of wage indicators continues to point to acceleration.
We estimate that the unemployment rate fell from 5.5% to 5.4%. We continue to expect the Feds long-term neutral rate of 5.0-5.2% to be reached in H2 this year.
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