Orlando's Outlook: Goldilocks jobs report could ease Fed pressure


Bottom line In a nearly perfect employment report released this morning, nonfarm and private payrolls were much stronger than expected in June (gains of 213,000 and 202,000 jobs, respectively), with healthy upward revisions for both April and May. The manufacturing sector was the star, posting a surprisingly robust gain of 36,000 jobs (a 6-month high), roughly double May levels.

We enjoyed a powerful surge in the civilian labor force to a 4-month high of 601,000 in June, largely due to heightened levels of consumer confidence, as legions of unemployed workers left the sidelines and began to look for work again. That drove the participation rate up two ticks to 62.9%, which similarly forced the unemployment (U-3) and labor impairment (U-6) rates up to 4% and 7.8%, respectively, for the “right” reasons. In addition, hours worked remained flat for the fifth consecutive month, while average hourly earnings slipped a tick to a month-over-month (m/m) gain of only 0.2%, which translated into a weaker-than-expected annual pace of 2.7%.

So amid concerns about rising trade tensions and the contentious midterm elections, today’s demonstrated slack in the labor market and absence of wage pressures may provide the Federal Reserve with some much-needed wiggle room at its September policy-setting meeting to avoid accelerating the pace of rate hikes.

Better-than-expected nonfarm payroll gains The 213,000 jobs added in June were comfortably above the Bloomberg and Federated consensus of 195,000 jobs. In addition, the Bureau of Labor Statistics (BLS) revised April and May higher by a combined 37,000 jobs. April was revised up, from a preliminary increase of 164,000 jobs, to a revised gain of 159,000 last month, to a final gain of 175,000 this morning. May also was revised higher, from a preliminary gain of 223,000 jobs last month to a revised increase of 244,000 this morning. So the average gain of 208,000 jobs in May and June is 26% better than the disappointing lull of only 165,000 during March and April.

Household survey eases The admittedly volatile household survey rose by 102,000 jobs in June, but that pales by comparison to the robust gain of 293,000 in May. Household hiring added only 3,000 jobs in April, lost 37,000 due to the snow storms in March, and added a stunning 785,000 in February. This leading indicator for nonfarm and private payrolls serves as the basis for the official unemployment rate.

Participation, unemployment and labor-impairment rates all rise Because more people are gaining confidence about their ability to find a job, the civilian labor force grew by 601,000 people in June (versus only 12,000 in May and a decline in the labor force of 236,000 in April). With an increase of only 102,000 in the household survey, that means 499,000 of these new entrants have yet to find work. But that did push the labor-force participation rate (the share of working-age people in the labor force) up to 62.9% in June from 62.7% in May. That’s still down from a 5-month high of 63% in February, but above a 41-year low of 62.3% set in September 2015. The unemployment rate rose to 4% in June, up from 3.8% in May (a 49-year low), versus 4.1% in March. The labor-impairment rate (U-6)—also known as the “total” rate of unemployment (or the underemployment rate) because it more broadly includes discouraged workers and the underemployed—also rose to 7.8% in June from 7.6% in May, although that’s still down from 8.2% in February.

Tepid wage growth, while but hours worked remain flat Average hourly earnings grew by a weaker-than-expected 0.2% on a m/m basis in June, down from a 5-month high of 0.3% May. They similarly rose on a year-over-year (y/y) basis by a weaker-than-expected 2.7% in June, same as in May. For the fifth consecutive month and the seventh time in the past eight months, the average private workweek for all employees was unchanged at 34.5 hours worked in June. Each additional 0.1 hour worked theoretically adds 350,000 jobs to the economy.

Manufacturing soars while construction slips The manufacturing sector, whose growth has been accelerating recently, added a much stronger-than-expected 36,000 jobs in June, nearly double the 19,000 jobs that were added in May, versus 28,000 in April, 21,000 in March and 31,000 in February. Housing, in contrast, has softened, so construction added only 13,000 jobs in June, compared with 29,000 in May, 16,000 in April, the loss of 3,000 in March, and the robust addition of 67,000 jobs in a warm February.

Retail falls, but transportation and temps rise After a strong May, retailers are planning on a softer June ahead of “Back-to-School” season, so they cut 22,000 jobs last month, versus adding 25,000 jobs in May, a downwardly revised loss of 2,000 jobs in April, modest gains of only 9,000 in April and 11,000 in March, and a strong increase of 46,000 jobs in February. Transportation (such as FedEx and UPS) added 15,000 jobs in June, versus 18,000 in May, 2,000 in April and 20,000 in March. Temporary help (a leading economic indicator) continued its recent choppy history, adding 9,000 jobs in June, losing 5,000 in May, adding 18,000 in April, losing 3,000 in March and adding 22,000 in February.

JOLTS, claims and ADP solid The Job Openings and Labor Turnover Survey (JOLTS) posted a record 6.7 million job opening in April, marking the first time in the survey’s 17-year history that there were more available job openings than unemployed Americans who could fill them. Initial weekly unemployment claims fell to 218,000 for the survey week that ended June 16, which is just off a 49-year cycle low of 209,000 set in April. While ADP added a weaker-than-expected 177,000 private jobs in June (consensus at 190,000), April and May were upwardly revised by a combined 18,000 jobs, to collectively offset June’s headline miss. But the recent 3-month average of only 179,000 private jobs is 21% below ADP’s average of 227,000 jobs in each of the previous six months through March, which was the strongest stretch in four years.

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