We expect the June U.S. employment report to show a total gain of 225,000 jobs, with risk of a stronger pace of hiring and an increase in the unemployment rate to 3.7%.

Given the Federal Reserve’s campaign to increase the policy rate that has reshaped economic expectations, we expect a reduced pace of hiring in rate-sensitive industries such as housing, autos and goods-producing sectors.

Despite the desire from market participants for the Fed to slow the pace of its rate increases, we do not think that the June data will alter the path of monetary policy. If there is any upside surprise in the jobs report, we think it will keep the Fed on a course to keep raising its policy rate until it reaches a range of 3.25% to 3.5% before pausing.

The combined increase in weekly jobless claims and the easing in the June Institute for Supply Management manufacturing employment subindex both support other data that points to a slowing in total employment from the 408,000 three-month average increase.

In addition, the sustained decline in asset prices will almost certainly cause large global firms to also slow their hiring.

We assign a 45% probability of a recession over the next 12 months. Since the first estimate of monthly payrolls tends to overshoot the true level of hiring, only to be revised down later, we think it a strong possibility that we are at a turning point in the labor market and expect downside revisions going forward.

On the wage front, we expect an increase of 0.3% on the month in average hourly earnings, which should translate to a slowing to a 5% year-over-year gain, down from 5.2% previously.