- Weak wages stand out in the jobs report and weigh on the US Dollar.
- The data is good enough for a September hike.
The US Non-Farm Payrolls report for June 2018 came out slightly better than expected on job growth: 213,000 positions added to the economy, above 195,000 expected. In addition, upwards revisions added a total of 37,000 to the figures for May and April.
But that is where the good news ends. As expected, the focus was on wages and here we have seen stagnation. Average Hourly Earnings rose by 2.7% in June, weaker than 2.8% projected. Month over month, salaries increased by 0.2%, also below 0.3% expected. Wage growth remains only OK and is not accelerating at a satisfactory pace.
The Unemployment Rate also fell short of expectations with a bump up to 4% against 3.8% in May and 3.8% forecast. How can the jobless rate increase when jobs are created? This is due to a rise in the Participation Rate from 62.7% to 62.9%. The jump in participation is good for the broader economy but bad politically. This is especially important as this increase caused the unemployment rate to rise back to the 4% handle.
Other figures came out more or less as predicted: the average workweek stood pat at 34.5 while the U-6 jobless rate, or "real unemployment rate" rose back up to 7.8%. This alternative measure of people out of work also includes part-time workers who seek a full-time job, discouraged people, etc.
Fed implications - business as usual
For the Federal Reserve, the publication does not change the picture. A small downgrade of the odds for a rate hike in September will probably be short-lived. Job growth remains robust and no acceleration in salary increases is not bad enough to cause the Fed to halt.
In addition, there are two additional jobs reports until the important meeting in September and many other figures to watch. The next big market-mover is inflation, which is due on July 12th. A rise in Core CPI will likely make the Fed forget about wages not accelerating to 2.8%.
In addition, the specter of trade wars remains a primary market theme and it was also highlighted by the Fed in its FOMC Meeting Minutes. If the economy turns down due to souring commerce partnerships, the impact will be much worse than today's report.
All in all, the economy looks good and only trade can change the Fed's mind.
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