June Payroll Preview

Churn, while no longer deteriorating, is at 1Q10 levels when the unemployment rate was near 8%. The Labor Differential and wage deceleration point to an abundant slack regime.

Labor market signals are mixed and conflicting: manufacturing hiring is picking up (helped by defense spending and data center demand) while nonmanufacturing/services data is shaky, and a recent rebound in job openings looks fragile, concentrated in small businesses whose other indicators (NFIB, Indeed postings) still show weakness.

Wage growth keeps decelerating across major series (average hourly earnings, ECI, Atlanta Fed Wage Tracker), and survey measures like the Conference Board’s Labor Differential have dropped sharply, pointing to a higher “true” unemployment/underemployment rate than headline BLS figures show — likely due to BLS struggles estimating population changes since the 2021-24 immigration surge.

We expect the Fed’s expectations enhanced Phillips Curve inflation model to be dropped under Chair Warsh, and the FOMC to conclude, like us, that labor slack is abundant and is far from a source of risk to their inflation mandate. Consequently, we suggest resisting the urge to sell 2s if the establishment survey shows a fourth decent gain.