Employment: Strong Gains, Only Some Caveats

Bottom Line: Job gains were sharply stronger than expected in July, adding 528k jobs with stronger average hourly earnings. The household employment report (used to calculate the unemployment rate) showed gains of 179k, notably lower than the establishment survey amid high volatility in economic surveys since the pandemic. Moreover, seasonal factors biased the report higher as the education sector started hiring in July, with schools in many parts of the country starting earlier. The seasonal models expected an increase in August, and that may have biased this report higher by as much as 75 -100k.
 
 Trends in average hourly earnings were showing signs of slowing, but this report suggests there has been a re-acceleration in the trend. The services sector has driven most of the recent gains, as evidenced by continued hiring in July and only a modest increase in the participation rate.
 
 Overall, this was another solid labor report. Given the  Fed's focus on the strength of the labor market as a critical factor behind sustained inflation, this will do little to dissuade the notion the Fed will likely continue rate hikes in September, November, and probably December, with 75bp increases likely back on the table.