• On the surface, today’s US labor market should show that the Fed is making progress in slowing down the very overheated labor market. Payrolls growth is expected to print at 325k, down substantially from the YTD average of 519k. Furthermore, the decline in the unemployment rate has slowed down this year, suggesting the unemployment rate will bottom out around 3.5 percent. However, appearances can be deceiving. The slowdown in payrolls growth is probably by and large a function of insufficient labor supply, not a slowdown in demand. And underlying measures of wage growth showed further increases in April, the last month for which we have detailed data available.
  • Then there is Fed Chair Powell’s key metric, the vacancies rate. The chart below shows the number of unemployed for every job opening. The ratio is slightly above 0.5, meaning that there are about two vacancies for every unemployed worker:

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