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The Secret Sauce in the July Jobs Report

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It's the most important economic data point in the world. Financial markets will grind to a halt on Friday as the Labor Department releases the July nonfarm payroll report. While economists, on average, are looking for 175,000 jobs to be added and a one-tenth of a percent dip in the unemployment rate (to 7.5%), the real action could be buried several lines deeper.

"Anything with regard to hours — any sort of indication that average hourly earnings is starting to pick up," says Kevin Cummins, U.S. economist at UBS, in the attached video. While acknowledging that month-to-month data is volatile, he says the June print of 0.4% hourly wage growth marked a four-year high.

"That would suggest that there may be some structural changes in the labor market that are beginning to push up wages," he says. "Obviously that's good for the consumer, but it also suggests [there is] probably a little bit more inflation than what the Fed is expecting."

For the record, Cummins' team at UBS is looking for 195,000 total jobs, 200,000 private sector jobs and unemployment to be at 7.5%. Given the stronger-than-expected print of the ADP Private Sector Report on Wednesday, he says that could be an area of surprise for July. "If anything, in the last few months [the ADP report] has under-predicted the pace of the BLS's private sector job growth."

Looking out a bit further, Cummins is currently expecting the unemployment rate to come down to about 6.25% by the end of next year. He notes that, if correct, it would be "below the Fed's 6.5% threshold," which has been set as a precondition to any rate increases.

While some would challenge that goal and have complained about the slow pace of the recovery, Cummins points out that "job growth of 200,000 a month is more than enough to keep pushing the unemployment rate lower."

The July nonfarm payroll report will be released Friday by the Bureau of Labor Statistics at 8:30 am EDT.

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