The unemployment rate ticked down to 3.5%, matching the prepandemic number at the lowest level since 1969. The labor force participation rate fell to 62.1%, the lowest since December. Average hourly earnings increased 0.5% month-over-month and 5.2% year-over-year.

From the Fed's perspective, the report showed that job growth is very strong and that the labor market remains extremely tight. The decline in the participation rate suggests that workers returning to the labor force cannot be relied upon to alleviate labor shortages. Earlier in the week, JOLTS job openings came in at 10.7 million for June, down by more than one million from the peak in March, but still very high from a historical perspective. With the number of unemployed at only 5.7 million, there aren't enough people available to fill those positions, putting upward pressure on wages. All of this suggests that the Fed will need to keep hiking aggressively. 2-year Treasury yields rose around 20 basis points after the data was released.

This week, the NFIB survey of small businesses will provide further information on labor market conditions and inflation. Lower gas prices in July should bring down the headline CPI inflation rate, but core inflation will likely show another big increase. Inflation expectations from the University of Michigan's Survey of Consumers is also important for the Fed.

Main contributor - Brian Rose

Content is a product of the Chief Investment Office (CIO).

Original report - Job growth surges in July , 08 August 2022.