An American economy in free fall does not tend to produce 372,000 jobs in any given month, as the June employment report showed on Friday.

The data released by the Labor Department strongly implied that the economy is not in recession, which is in line with our base case that the economy will continue to expand through the remainder of the year, with a 45% probability of a recession over the next 12 months.

If anything, the robust jobs report, which showed the unemployment rate holding steady at 3.6%, should underscore the urgency at the Federal Reserve to raise the federal funds policy rate by 75 basis points at its next meeting on July 27.

The top-line gain of 372,000 jobs in June is in line with the 375,000 three-month average change in total employment over the past 90 days.

It was driven by strong gains in higher-paying professional business services, health care, leisure, hospitality, goods-producing industries, manufacturing and information. The only major sector that experienced job losses on the month was the state and federal government.

Even as the unemployment rate held steady, the household survey indicated that roughly 315,000 people left the labor force on the month while the overall labor force declined by 353,000. The labor force participation rate eased to 62.2% and the employment-to-population ratio declined to 59.9% in June.

For Fed policymakers trying to cool aggregate demand, if there was a silver lining inside the report, it was an easing in average hourly earnings. That metric increased by 0.3% on the month and advanced by 5.1% on an annual basis, down from the 5.3% annual gain in April and the 5.6% increase in March. On a three-month average annualized pace, average hourly earnings increased by 4.3%, down from 6.1% in January.

In some respects, this is the best evidence that the Fed’s attempt to cool the economy is bearing fruit. If the economy is shifting from a low inflation regime to a high inflation regime—something that central bankers at the recent European Central Bank meeting discussed—then one would expect to observe evidence of a wage price spiral.

This data does not tend to support that view and implies that the Fed, once it hikes its policy rate to a range between 3.25% and 3.5%, will be in a position to pause its price stability campaign and ascertain the underlying direction of growth, employment and inflation in the economy.

The takeaway

Given the likelihood that inflation will remain sticky amid elevated energy prices, this is what passes for good news in the economy.

That is about the best-case scenario one can construct given the fact that financial conditions remain tight and that the median American household is now dedicating roughly 9.7% of after-tax income toward gasoline costs. Elevated food and gasoline costs will continue to sour public opinion despite the recent decline in oil and gasoline prices.