On Friday, the market focused on the June NFP jobs report. Although the Fed almost confirmed rate hikes of around +0.75% in July, the pace of these in September, November and December will also depend on the actual path of inflation/inflation expectations . The Fed will also focus on wage growth to gauge whether wage and price inflation is getting out of control. If wage growth outstrips productivity, it can lead to higher inflation. Thus, employment reports focus primarily on wage growth rather than job creation/employment numbers, as the US economy is now near peak employment, but inflation is well above the Fed’s 2% target for a substantial period. The Fed wants to see some slowdown in the jobs/labour market so that demand as well as inflation will cool down to some extent.
Friday, the latest flash data from the BLS/NFP establishment shows that the US economy (public and private sectors; i.e. public and private employment excluding agriculture industry) added +372K jobs in June versus +384K jobs in May and well above market expectations of 268K. May’s preliminary figure of 372K is about the lowest since the April 21 figure of 368K and has come down significantly from the February high of +714K, which may be due to labor market / labor market saturation. hiring, labor supply constraint and slowing economic growth in Russia-Ukraine / NATO geopolitical tensions/subsequent economic sanctions and persistent/high inflation.
But the latest reading of NFP job additions left the US economy around +524,000 jobs or 0.3% below its pre-COVID level (Feb 20), a sign that the labor market remains resilient. and approaching full employment. Additionally, private sector employment has recovered from job losses due to COVID and is 140,000 higher than in February 2020; it is therefore the public sector that is lagging behind, destroying -9,000 jobs in June. In May, the government payroll increased by 48K, the largest increase in 10 months; Overall, the average government payroll job fill rate is now around +32,000 over the past 12 months (since July 21).
Non-agricultural private wage bill in the U.S. (Private Institution/Corporate Employees Only) added +381K jobs in June, vs. +336K sequentially (May), well above market expectations of 240K, and well within above the ADP figure of 237,000.
In June, notable gains in private employment occurred in professional and business services (+74K), namely management of companies and enterprises (+12K), design of computer systems and related services (+10K); leisure and hospitality (+67K), mainly restaurants and drinking places (+41K); and Health care (+57K), including outpatient services (+28K) and hospitals (+21K). Additionally, manufacturing employment increased by +29,000 and returned to pre-COVID-19 levels in February 2020.
According to the establishment survey, the change in total non-farm employment (NFP) for April was amended down from -68K to 368K, and the change for May has been revised down from -6K to +384K. With these revisions, NFP employment in April and May combined is -74K lower than previously reported.
Overall, according to establishment survey data, in 2021, the U.S. public and private sectors added about 6,743,000 nonfarm jobs, at an average monthly rate of 562,000, which is in line with Fed estimates. Preliminary estimates put the average NFP job additions for January-June 22 now at around 457,000, well above the Fed’s estimate of 200,000 for the long term (Goldilocks economy). ) and the pre-COVID (2019) average rate of around 168,000.
According to the Household Survey, which includes non-farm employment and self-employment (including contractors and agriculture), the U.S. economy has subtracted -315K jobs (persons employed) in June versus +321K sequentially (May). The average job/employment addition for 2021 was 512,000. Following the June data, the number of employed people in the United States (according to the household survey) reached 158,111,000 in June, up from 158,426,000 sequentially (May) and from pre-COVID levels (February 20) of 158,735,000; that is, the economy is still short of -624,000 employed people compared to pre-COVID levels. According to household survey data, the US economy added 2,136,000 jobs/employees vs. 2,740,000 in establishment survey data in 2022 (through June) after 6,145,000 compared to 6,743,000 in 2021.
According to household survey data, the unemployment rate in the United States remained unchanged at 3.6% in June, remaining the lowest since February 2020 (pre-COVID), and also in line with market expectations. The overall unemployment rate is still slightly above February 2020 (pre-COVID) levels of 3.5%.
The nominal number of the civilian labor force has decreased by -353K in June to 164023K versus adding +330K sequentially (164376K in May) and Feb 20 (pre-COVID) levels of 164448K. The nominal number of unemployed was 5912K in June, decreased by -38K sequentially and remains above February 20 (pre-COVID) levels of 5717K. If the February 2020 civilian labor force of 164,448K (pre-COVID) is considered instead of the June 22 figure of 164,023K, then the June 22 unemployment rate would have been 3.9% instead of 3.6 %.
The activity rate fell slightly to 62.2% in June, from 62.3% sequentially. The activity rate was 63.3% in February 2020 (pre-COVID), still higher than in June 22.
U.S. average hourly wage (AHE) growth is slowing for +5.1% in June vs. +5.3% sequentially, and above market expectations of +5.0% gains (y/y). On a sequential (m/m) basis, the AHE rose +0.3% in June versus +0.4% sequentially (May), in line with market expectations. The AHE of all non-farm private sector payroll employees in the United States increased by +$0.10 to $32.08 in June, while the AHE of private sector production and non-supervisory employees increased increased by +$0.13 to $27.45. Average weekly hours (AWH) for all non-farm employees in the United States remained unchanged at 34.5 in June, below market expectations of 34.6.
Ultimately, Average Weekly Earnings (AWE) were $1,106.76 in June versus $1,103.31 sequentially (+0.3%) and $1,062.10 yearly (+4.2%). In April, the sequential growth of the AWE was +0.3% and the annual growth of +5.46%; in May, sequential and annual growth was +0.3% and +4.3%. that is, there is a moderation in sequential and annual wage growth. But real AWE growth is turning negative and the purchasing power of USD is also steadily declining as inflation (headline CPI) is soaring from +8.3% in April to about 40 years old. Sequential AWE growth is now around +0.3% vs. CPI growth of +0.8%; that is to say that there are still no spirals of wage inflation today.
Conclusion: BLS’s June U.S. jobs report can be called terrible rather than “blockbuster”
On Friday, Wall Street futures and gold crashed, and the USD surged on better-than-expected/hit NFP job additions in June, establishment survey data shows . But there has also been a huge negative revision of -74K over the past two months (April and May). According to household survey data, there is a contraction in the nominal number of employed persons -315K in June after an addition of +321K in May; that is, there was a net addition of employed people of only +6K in May and June. In June, the labor force decreased by -353K after adding +321K in May; a net contraction of -32K over the past two months.
Additionally, wage growth in June was subdued while the overall unemployment rate remained unchanged at 3.6%. After the June flash data, average NFP YTM job gains are now around 457,000 (according to establishment survey data), while the average number of people employed has increased by 356,000 (according to household survey data); that is, there is a significant divergence and the data on NFP job creations may be further revised negatively.
Overall, the June jobs report can be called terrible (cold) rather than blockbusters (hot) according to household survey data, which the Fed tracks for its peak employment mandate. . Also, the overall employment report for the past six months can be called a golden loop, as the average run rate drops to 356K from the 2021 average of 512K, which the Fed is chasing even after a market very tense work, where the demand is much higher than the supply.
Either way, the Fed is set to hike +0.75% in July, followed by +0.50% each in September, November and December, regardless of labor market conditions, because the inflation and price stability mandate is now its main objective. The Fed is quite optimistic about the US economy despite 40 years of high inflation. The Fed still believes in a soft landing. But the Fed is quite concerned about skyrocketing inflation and 1-year inflation expectations. Thus, the Fed opted for a restrictive/jumbo hike of +0.75% in June to slightly lower inflation expectations. The Fed’s unexpected ultra-hawkish +0.75% rate hikes in mid-June may also have led to some easing in 1-year inflation expectations in the UM data. Thus, the Fed could opt for another rate hike of +0.75% in July, but could opt for a rate hike of +0.50% in September, November and December for a terminal rate of +4.00 % by December 22. But if inflation does not come down significantly, the Fed could opt for rate hikes of +0.75% in September, November and December as well.
At the end of the line :
The June NFP jobs report may not be a blockbuster at all considering the household survey data. But even then, it won’t change the Fed’s rate hike plan in the coming months, as the Fed will be based solely on inflation data. So the overall impact of the June NFP jobs data is quite limited, even after the usual volatility (gut reaction).