US June 2016 Labour report: Payrolls underline labour demand solid, but no immediate domestic pressure on Fed
a) Payrolls / Establishment survey - At +287K this was an easy beat, even when accounting for the 35K boost from the end of the Verizon strike, with the downward revision to May to 11K actually proving that May was an outlier, given that April was revised up to 144K. As ever the more reliable indicator is the 3-mth average, which stands at 147K, against a Fed breakeven rate 80-100K. One caveat on the June strength was that the biggest gain was a likely seasonal 59K rise in Leisure/hospitality; but there were also solid gains in Professional/business +38LK, Manufacturing +14K, Information +44K and Govt +22K.
b) Unemployment Rate / Household Report - Slightly higher than expected rise Unemployment Rate to 4.9% due to 414K rise in the Workforce after 820K fall in prior months, though many will highlight the 347K rise in Unemployment, the net fall for Q2 Unemployment was 183K. Participation (62.7%) and Underemployment (9.6%) Rates improve 0.1 ppt on the month. Key point remains that with the pool of available labour at low levels, and given well documented skills shortages (see last Beige Book), this is a solid gain.
c) Average Weekly Hours - Disappointing in the sense that this was 34.4 for a fifth month, following readings of 34.5/34.6 throughout March 2014 to January 2016 period, Mining continues to be a big drag with hours falling to 42.7 from 43.8 in May, Manufacturing Hours unchanged at 40.7 implying a flat m/m input for Industrial Production
d) Average Hourly Earnings - Below forecast at 0.1% m/m but still up to 2.6% y/y (f'cast 0.2% m/m 2.7% y/y), which is also the annualized year to date pace. This is probably best described as Fed neutral, in other words not too hot, not too cold.
e) Market reaction - A knee-jerk sell-off in Treasuries proved to be very short-lived with the Treasury market reverting to curve flattening (see Table), while the USD's gains were also no more than a blink of an eye (JPY testing key 100.00 level), while the rally in the S&P e-mini future has thus far been modest. US Q2 earnings start to dribble in next week, and there are a raft of key US data: Retail Sales, CPI, PPI, as well as NFIB Small Business Optimism, and Treasury issuance total $68 Bln of 3, 10 & 30-yr, with a rush of corporate issuance possible ahead of earnings seasons lockdowns.
from Marc Ostwald