**Strong Wage and Jobs Growth Keeps Fed on Track for Big Rate Increase**
**The Federal Reserve is trying to cool down the economy to bring inflation under control, but the job market is still going strong.**
**By Jeanna Smialek, The New York Times, July 8, 2022**
**Wages climbed briskly in June and employers continued their hiring spree, the latest evidence that the labor market remains strong even as the Federal Reserve tries to cool the economy and contain inflation. The data are likely to keep central bankers on track for a supersize rate move at their July meeting.**
**Employers added 372,000 workers last month, fewer than in May but more than economists had expected, data released Friday showed. At the same time, average hourly earnings picked up by 5.1 percent in the year through June, down slightly from 5.3 percent in the year through May....** [end quote]
Average Hourly Earnings of Production and Nonsupervisory Employees, Total Private is $27.45 per hour, compared with $24.03 per hour in January 2020. Wages for non-managers, which economists watch closely as a gauge of underlying strength in the labor market, climbed by 6.4 percent from a year earlier.
With the pandemic subsiding, the economy is shifting more toward the service sector (which is much larger than manufacturing). The service sector is labor-intensive, so rapid wage increases feed into inflation. However, the wage increases are lower than the CPI inflation rate of 8.6%.
The unemployment rate was 3.6 percent for the fourth month in a row, and the number
of unemployed persons was essentially unchanged at 5.9 million in June. These measures
are little different from their values in February 2020 (3.5 percent and 5.7 million,
respectively), prior to the coronavirus (COVID-19) pandemic.
The labor force participation rate, at 62.2 percent, and the employment-population ratio,
at 59.9 percent, were little changed over the month. Both measures remain below their
February 2020 values (63.4 percent and 61.2 percent, respectively).
The number of persons not in the labor force who currently want a job was essentially
unchanged at 5.7 million in June. This measure is above its February 2020 level of 5.0
million. These individuals were not counted as unemployed because they were not actively
looking for work during the 4 weeks preceding the survey or were unavailable to take a job.
These are strong numbers for job and wage growth. There is little doubt that the Fed will raise the fed funds rate 0.75% next week. Even though the markets have been anticipating this, it’s possible that there will be a strong response. The Treasury bond market is responding as yields, which fell last week, are rising again.
Although employment is a lagging indicator, the economy remains strong. The Fed has plenty of leeway to raise rates. If the next inflation reports are high the Fed will continue to raise the fed funds rate even if it causes a recession.