On the July Jobs Report

A blockbuster payroll report with 528,000 new jobs. The unemployment rate fell to a new recovery low, 1 bp below where it was just before the pandemic. Markets have immediately assumed this will move the Fed to tighten more aggressively, but that won’t last. The “household survey” confirms the payroll number, when adjusted to a “payroll basis” – though seasonal adjustments played a very large role. Large jobs gains prove the Fed wrong again – the labor market is not tight. Tuesday’s JOLTS job openings fell again, now off 1.16 million from March’s historic peak, the month the Fed lifted-off the funds rate from zero. The contraction of openings, in just three months, is more than half that seen in the last two recessions. That’s Powell’s go-to indicator for labor tightness. With that, and two CPI reports likely to show sharply decelerating inflation, we reiterate our call for only a 25 bp hike at the September FOMC.