- The US Job report for June was stronger than expected, showing job gains of 288 in June (consensus 217K, Danske: 225k ) albeit the whisper number in the market probably was higher than the official consensus after yesterday’s strong ADP private employment report. Payroll gains in May was revised slightly higher from 217K to 224K and the net revisions for the previous two months was 29K. The three month moving average improved markedly to 272K from 244K in May.
- The unemployment rate declined to 6.1% in June (Consensus: 6.3%, Danske: 6.3%) from 6.3% in May and hence reached a new cycle low. It mirrored a surge household employment of 407K and an increase in the labour force of 83K.
- Labour participation rate stayed at the cycle low of 62.8%. Hence there is still no sign that discouraged workers are returning to the labour market in any major way. This could be a concern for Fed as it suggest that there is less slack in the economy .
- However, wage inflation eased to 2.0% y/y (rose 0.2% m/m) from 2.1% y/y in May . Hence, wage growth remains subdued suggesting that there still is ample slack in the labour market. As long as wage growth remains subdued will probably not be too concerned about the fast decline in the unemployment rate .
- Overall, the employment report points to fairly robust job growth supporting private consumption but, at the same time, pointing to modest inflation pressure from wages. The strong job growth suggest that the consensus 3.5% q/q ann.GDP forecast for Q2 is still achievable and some upside risk on the 3.1% q/q ann. consensus forecast for GDP growth in Q3. The report will suit the Fed very well and won’t change anything in its current outlook.
- Looking ahead, we look for job growth to rise gradually to 250k-300k in H2 as growth picks up further steam. As core inflation is also bottoming out and housing is expected to recover, this will likely lead to less dovish talk from Fed during the summer/autumn and more risk premium in the US money market curve.
Job growth is picking up pace
Initial unemployment clains consistent with 250k-300k payroll gains
Unemployment rate declining fast
Wage growth remains subdued
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