So much for 50bps (or maybe even 25bps) of rate cuts in July.
With whisper numbers for the June payrolls well below the 160K consensus (perhaps as the market hoped the case for 2 rate cuts in July would be cemented), moments ago the BLS reported that last month 224K jobs were created, three times greater than the revised 72K jobs in May, and well above the 160K expected and above the highest Wall Street forecast.
This was also the best monthly increase since January, and a number that has made 2 rate cuts at the Fed's July meeting virtually impossible, and even setting the scene for a Fed that may in fact be "patient" in three weeks, crushing market hopes for an imminent easing cycle.
Just as notable, the Household survey was even more euphoric, rising by 247K to 157.005 million employed workers.
The change in total nonfarm payroll employment for April was revised down from +224,000 to +216,000, and the change for May was revised down from +75,000 to +72,000. With these revisions, employment gains in April and May combined were 11,000 less than previously reported.
Sure enough, the market implied odds of a July rate cut slumped quickly even as the wage growth number disappointed, as the BLS reported only 0.2% increase in average hourly wages in June, below the 0.3% expected, a number which also missed on a Y/Y bases, increasing 3.1% Y/Y in June, below the 3.2% expected. That said, May’s monthly gain revised higher, suggesting workers continue to wring solid wage increases from employers.
Commenting on today's report, Torsten Slok of Deutsche Bank at Bloomberg TV: “It looks like rate cuts are off the table", although others like Renaissance's Neil Dutta disagreed: "Solid jobs, but...the unemployment rate rose, wage growth is flattening out, there is still residual slack in the jobs market. We tend to think July cuts are still more likely than not."
There was no rebound in the recent modest drop in the average workweek for all employees, which was unchanged at 34.4 hours in June, same as last month, although in manufacturing, the average workweek edged up 0.1 hour to 40.7 hours, while overtime was unchanged at 3.4 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls held at 33.6 hours.
The unemployment rate, which has become a secondary indicator, rose fractionally to 3.7%, from the 49 year low of 3.6% in May, and missing the 3.6% expectation, even as the unemployment rate for black dipped back to 6.0%, matching the all time record low offset by a modest increase in the unemployment rate for hispanics..
Eleewhere, as Bloomberg notes, in another positive sign for hiring, one-month diffusion index for private jobs rebounds to highest level this year, while there was no mention of impact of temporary hiring for 2020 decennial census.
Looking at a breakdown of jobs from the Establishment Survey:
- Professional and business services added 51,000 jobs in June, following little employment change in May (+24,000).
- Employment in health care increased by 35,000 over the month and by 403,000 over the past 12 months. In June, job growth occurred in ambulatory health care services (+19,000) and hospitals (+11,000).
- Transportation and warehousing added 24,000 jobs over the month and 158,000 over the past 12 months. In June, job gains occurred among couriers and messengers (+7,000) and in air transportation (+3,000).
- Construction employment continued to trend up in June (+21,000), in line with its average monthly gain over the prior 12 months.
- Manufacturing employment edged up in June (+17,000), following 4 months of little change. So far this year, job growth in the industry has averaged 8,000 per month, compared with an average of 22,000 per month in 2018. In June, employment rose in computer and electronic products (+7,000) and in plastics and rubber products (+4,000).
- Employment in other major industries, including mining, wholesale trade, retail trade, information, financial activities, leisure and hospitality, and government, showed little change over the month.
In summary, the economy continues to chug along as expansion becomes the longest in U.S. history this month; lets President Trump continue to boast about creating jobs though it becomes harder to justify his call for lower interest rates.