US employment growth rebounded sharply in June, according to Goldman’s Jan Hatzius, and as a result, the bank confirms their expectation of about a two-thirds chance that the FOMC will raise rates this year, most likely in December… notably different from market expectations.
MAIN POINTS:
1. Nonfarm payroll employment increased by 287k in June, a sharp rebound from a downward revised 11k rise in May. Net revisions for the prior two months totaled -6k. The three-month moving average of employment growth was to +147k—above our and Fed estimates of the payroll “breakeven” rate, or the amount needed to reduce spare capacity in the labor market over time. Job gains in most categories accelerated last month, especially in the weather-sensitive retail (+30k vs. +3k), leisure & hospitality (+59k vs. -3k), and construction (flat vs. -16k) sectors. Most other details in the establishment survey were also firm, including increases in manufacturing (+14k from -16k), information (+44k from -39k; reflecting the conclusion of the Verizon strike), and temporary help (+15k from -19k) categories. The payrolls diffusion index—which represents the percent of industries with employment rising—rebounded to a trend-like 62.4% after falling to its lowest levels since early 2010 in May.
2. The household survey was slightly softer than the establishment survey, showing a 67k increase in employment in June, following soft growth in May (+26k) and April (-316k). The unemployment rate rose to 4.9% (4.899% unrounded), as the labor force participation rate rose by one-tenth to 62.7%. The U6 underemployment rate declined 0.1pp to 9.6%, mostly due to a decline in involuntary part-time employment.
3. Average hourly earnings rose 0.1% in June (vs. +0.2% consensus) and were up 2.6% on a year-on-year basis, an increase from 2.5% in May. In our view the below-trend increase in average hourly earnings reflects calendar quirks, rather than fundamental news about wage growth. Average weekly hours remained at 34.4 for the fifth consecutive month.
4. With payrolls, unemployment claims, consumer sentiment, vehicle sales, and a number of business surveys in hand, our preliminary read for the June Current Activity Indicator is +2.1%, up from +1.0% in May (labor market data in the CAI are adjusted for the effects of strikes). The three-month moving average edged up to 1.7% from 1.6% in May.
5. For Fed policymakers, today’s report is likely to allay concerns about US growth momentum, in our view, and keep the committee on track to raise rates at some point later this year. We continue to see a 25% chance of a rate increase in September and a 40% chance of a hike in December—plus some small possibility of a rate increase at the November meeting. Action as early as the September meeting would require definitively strong growth data between now and then, plus negligible fallout from the vote in the UK to leave the EU.
Source: Goldman Sachs
powered by sue.ng a legal search engine