US Economic Notes:July employment preview,More of the same is just fine for the Fed

We continue to expect solid payroll growth in the July jobs report (200k forheadline and private), which should be sufficient to lower the unemploymentrate a tenth to 4.3%. However, the July ADP survey and the employmentsubcomponents of the manufacturing and non-manufacturing ISMs impartmodest downside risk to our forecast. The composite employment reading fromthe ISMs remains sturdy, though it fell to its lowest level since April, drivenprimarily by a decline in the non-manufacturing sector. Our payrolls model, whichuses the first reported values of ADP and the ISM composite employment reading,projects private payroll gains of around 165k. Counterbalancing this downsiderisk though is the fact that private payrolls have recently fallen short of the levelsimplied by ADP and the ISMs, and payrolls (including revisions) have acceleratedin the past following similar misses.

    Regarding the other details of the employment report, hours worked shouldremain steady at 34.5. Importantly, we project a 0.3% gain in average hourlyearnings (AHEs), which would have the effect of lowering the year-over-yeargrowth rate of the series a tenth to 2.4%. However, in our view, the risk is that itrounds up and remains at 2.5%. While market participants will likely focus intentlyupon the wage data given the recent slowdown in core inflation, as long as thereis no material surprise in either direction, this month's AHEs are not likely tomeaningfully impact policymakers' intermediate-term inflation expectations.

    With respect to the payroll proxy for income (hours x private payrolls x AHEs) ourforecasts for July imply growth of 4.4% year-over-year, which is well within therange over the past several years. Lastly, we should note that even if July payrollsare a bit below our forecast, Amazon's hiring spree this month could result in anupside surprise when the August data are released on September 1. For example,the 12-month trailing average for warehousing and storage payroll gains is 3k.

    Next month's employment report will likely factor more prominently into the Fed'sdecision process going into the September 20 meeting. - Luzzetti & Ryan

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