The June jobs report was a blip — we hope

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Good morning. We’re still seeing research touting a “great rotation” within tech, from the hyperscalers to the semiconductor stocks. But the rotation appears to be well over. Yesterday the chip stocks and other AI “infrastructure” plays got hit hard again, and they have gone nowhere for a month. More like a NOtation, amirite? What is working this month: healthcare, financials, industrials, in that order. We’re still not sure what that’s all about. Email us: [email protected]. 

US jobs

The US labour market narrative for the past few years, until the June employment report hit yesterday, went as follows. The wild, post-Covid, lockdown- and stimulus-driven job boom slowly cooled from its 2021 peak. The nadir came in the second half of 2025. By then it looked then like the US’s break-even level of job creation (the level that keeps the unemployment rate constant) was roughly zero. A working-age population that is not growing and an unremarkable rate of economic growth will do that to a country. But then, this spring, green shoots: the March, April and May reports showed meaningful job growth. Add that to improving activity surveys, an AI-driven investment boom, high corporate profits and consumption that is still growing, and you have a case that the US economy is reaccelerating. Many pundits had predicted precisely this before the US went to war in Iran and oil prices jumped. Maybe it was only a case of growth delayed:

That is a cheerful story, and Unhedged was starting to believe it. But the June report makes it a little harder to buy. Not only were only 57,000 jobs added, but the combined numbers for April and May were revised downward by 74,000, to 277,000 (for the umpteenth time: the revisions are not a shadowy conspiracy; it’s just hard to track the employment status of 170-odd million people). The trend in job creation is still up — see the three- and six-month averages in the chart below. But it’s a weaker-looking trend than it was.

Many of the jobs that were added in June were in healthcare. So the trend is diminished even more if you look only at cyclical jobs, that is, taking out government, healthcare and social assistance work (this chart may look a lot like the last one, but note the very different location of zero on the vertical axis):

There may be a way to explain away the bad month, however. Employment in hospitality and leisure might have been expected to rise in June, in the run-up to the North American edition of the World Cup (some sort of soccer tournament, Katie tells me). But, strangely, the sector crashed hard, losing 61,000 jobs:

A statistical blip? It’s possible, and if you take out the hospitality losses, we would be talking about a nice four-month trend. The market seems to be taking this optimistic view; market-implied odds of a rate increase only moved a touch lower yesterday. We’ll find out next month if the market is right. Until then, we are left with the three most frustrating words in finance: wait and see. 

Trimmed mean inflation measures

Kevin Warsh, the new Fed chair, likes to look at inflation using trimmed mean measures. Here he is in his Senate confirmation hearing:

My broad sense is that these inflation risks and the inflation damage the last several years . . . has improved somewhat in the last year. The measures I prefer are looking at things that are called trimmed averages, where we take out all of the tail risks, all of the one-off items, and we ask ourselves whether the generalised change in prices is having second-order effects on the economy . . . 

What’s the underlying inflation rate? Not what’s the one-time change in prices because of a change in geopolitics or a change in beef, but what’s the underlying generalised change in prices in the economy?

US President Donald Trump, who appointed Warsh, wants lower rates. So it is not surprising that Warsh was eager to point to an inflation measure that looks cooler than plain old core inflation. Here’s the Dallas Fed’s trimmed mean measure of PCE inflation, compared with vanilla core PCE: 

The Dallas trimmed mean is noticeably lower, owing to differences in methodology. The Dallas Fed removes the PCE components whose price changes fall below the 24th percentile and above the 69th percentile in the distribution. The asymmetric cut is by design: historically, price drops have been more dramatic than price increases, which are more frequent but usually not as extreme. But lately the prices of items in the top 31 per cent have increased as much or more than prices at the bottom 24 per cent, with tariffs likely playing a part in that, so trimming off so much of the top has biased the Dallas measure.

The Cleveland Fed looks at CPI inflation in its trimmed measure, and it trims less and symmetrically. The biggest and smallest 8 per cent of price changes are snipped. So the Cleveland measure has run hotter than vanilla core CPI in April and May:

Trimmed means are helpful for seeing through volatility in periods of relative economic stability or with price shocks, researchers at the Dallas Fed point out. They are less likely to be revised and are more correlated with labour market slack.

With all the different shocks we’ve faced recently, however, trimmed measures risk downplaying inflation and pressure on consumers. Steve Englander at Standard Chartered points out that the Dallas Fed’s trimmed mean measure often lagged upward swings in core inflation, for example in 2021. He says

‘Which indicator tells us the most about future inflation?’ . . . The results do not point to clear outperformance by the trimmed means. The trimmed means are OK but never outstanding in terms of explanatory power

In an era of shocks — shocks that really matter to consumers and the wider economy — we hesitate to depend on measures that snip out the big moves, especially asymmetrically.

One good read

Eggs: the conspiracy.

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