Implications:  The Fed should feel foolish.  After last month's report that payrolls rose only 38,000 in May the Fed panicked, deciding to postpone rate hikes.  But in June payrolls rose 287,000, well above trend, higher than any economist was forecasting, and the fastest growth in eight months.  Both of these numbers should be taken with a grain of salt.  The economy was not as weak as suggested by anemic May payroll growth and is not as strong as today's number.  Instead, it's still a Plow Horse.  Part of the reason for the recent volatility in payrolls was the Verizon strike, but only some of it.  Information sector jobs fell 39,000 in May and rebounded 44,000 in June.  That's why it's important for everyone (including the Fed!) to look at the trend, which shows average monthly job growth of 204,000 in the past year and 172,000 in the past six months.  Although some pessimistic analysts will dwell on the jobless rate, which rose back to 4.9% in June, that follows last month's unusually large drop to 4.7%.  Again, look at the trend.  The jobless rate was 5.3% a year ago and the drop in the past twelve months is not due to a shrinking labor force; the labor force is up 1.9 million in the past year.  In addition, the U-6 unemployment rate, which includes discouraged workers and part-timers who want full-time jobs, dropped to 9.6%, the lowest since April 2008.  The details of today's report give the Fed reasons to put rate hikes back on the table.  Average hourly earnings (which exclude fringe benefits and irregular bonuses/commissions) grew 0.1% in June and are up 2.6% from a year ago, while total hours worked are up 1.6%.  Combined, total cash earnings are up 4.3% from last year, giving workers plenty of purchasing power.  That's impressive considering that many highly-skilled and highly-paid Baby Boomers are retiring.  Another positive detail was that the median duration of unemployment dropped to 10.3 weeks, the lowest so far in the recovery.  In other recent news on the labor market, new claims for jobless benefits fell 16,000 last week to 254,000.  Continuing claims for unemployment benefits declined 44,000 to 2.12 million.  These data suggest jobs continue to grow in July, somewhere in the 170,000 – 200,000 range.  We doubt the Fed will move in July, but the market is putting the odds of a rate hike by September at only 12%.  That's way too low.  Don't be surprised if the Fed still ends up raising rates twice later this year.   

Click here for PDF version