News & analysis

Today’s jobs report proved net neutral for dollar, and we suspect, for the FOMC. The headline nonfarm payrolls readings showed 206k jobs added in June, marginally above consensus estimates of 190k, even as technical factors such as survey windows provided downside risks.

Set against downgrades to both the April and May readings to the tune of-111k, and an unexpected increase in the unemployment rate from 4% to 4.1%, today’s data is unlikely to offer sufficiently clear readthrough for Fed voters looking to gain enough confidence to cut rates in July, but it should keep the door open for a cut at the September FOMC meeting.

Turning first to the details of the establishment report, the 209k jobs added in June was marginally below the twelve-month average of 220k.

Even so, it remains in line with or above most estimates of neutral for the US economy and is little changed from a May reading which was revised down to 218k. The strength of today’s numbers is all the more surprising given the number of headwinds that could have weighed on this print. A longer than average survey window in May should have pulled forward some the June job growth into the May figures, as suggested by alternative employment measures such as ADP and ISM PMIs that pointed to softer employment and hiring conditions last month. That said, we think these latest figures come with a caveat too. While headline figures were strong, private payrolls undershot expectations at 136k versus 160k expected in June, with employment having increased notably in less cyclically sensitive parts of the economy such as in government (+70K) and health care & social assistance (+82K).

The household survey, meanwhile, largely met expectations barring the unemployment rate edging up, and with this subject to substantial uncertainty given the large sampling errors, policymakers are likely to discount a single month uptick.

More broadly, the household survey continued to point to a modest but unspectacular labour market slowdown, with average hourly earnings growth falling from 0.4% MoM to 0.3% in June, and from 4.1% to 3.9% on an annual basis. Average weekly hours, meanwhile, stabilised at 34.3, as did the underemployment rate at 7.4%, even as the labour force participation rate edged up by 0.1pp to 62.6%. Taken as a whole, this continues to point to a softening job market, but not one that is rolling over soon enough to prompt a July rate cut from the Fed. As such, the emphasis from the FOMC is likely to remain on inflation data, where a continued stalling in core services inflation in June is likely to solidify Fed easing in September.



Nick Rees, FX Market Analyst


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