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07 08 2016 | by Victor Xing | Economics

June Payrolls: policy concerns ease

Abstract

June payrolls beat expectations at 287,000 vs. 180,000 consensus, and the unemployment rate rose for the right reason: labor force participation rate (including the 25-54yr category) rose vs. prior, and part-time workers for economic reasons fell.  Nevertheless, the report would also gave policymakers reasons to be cautious.  Average hourly earnings (wage growth) cooled at 0.08% MoM vs. 0.2% consensus, and the dismal May payrolls was revised a notch lower to 11,000 from 38,000 (two month net revision at -6,000).

June payrolls in detail

Broader unemployment rate (U6) declined to 9.6% in June vs. 9.7% in May, and the headline (U3) unemployment rate rose to 4.9% vs. 4.7% prior with labor force participation rate at 62.7% vs. 62.6% prior.  Prime age (25-54yr) participation rate rose to 81.2% vs. 81.0% prior, and part-time workers for economic reasons (involuntary part-time workers) fell:

June Payrolls
U3 and U6 broader unemployment rate declined
June payrolls
Participation rate rose a touch vs. prior

Some market participants argued that the six-and-a-half week strike by Verizon workers (which began on April 13) had an outsized impact on recent payrolls, and data suggest such distortion was indeed a factor.  Telecommunication sector saw an unusual burst of strong hiring (28,000) in June, which displaced the usual top hiring categories of Food Services and Drinking Places, as well as Professional, Scientific and Technical Services.  Similarly, a sizable number (32,000) of Telecommunication jobs were lost in May.

This would support Chair Yellen’s remark that some data distortions (transitory factors) were behind recent declines in payroll growth (San Francisco Fed President Williams’ seasonality thesis, however, remains difficult to assess):

Of course, it is important not to overreact to one or two reports, and several other timely indicators of labor market conditions still look favorable. One notable development is that there are some tentative signs that wage growth may finally be picking up. That said, we will be watching the job market carefully to see whether the recent slowing in employment growth is transitory, as we believe it is.

The highly watched average hourly earnings was softer than expected: MoM change at 0.08% vs. 0.2% consensus, and YoY wage growth stood at 2.6% vs. 2.7% expectations.  Volatility in this figure is not uncommon to financial market participants, but it would give policymakers more reasons to be cautious on the central bank’s price stability mandate:

Governor Powell was optimistic on wage growth in his June 28 remarks:

There are welcome signs of a firming in wages, seen most clearly in the data on average hourly earnings, which are rising faster than the sum of inflation and productivity growth.

Long-term unemployed (27 weeks and over) rose to to 25.8% vs. 25.1% prior:

June payrolls
Long-term unemployed rose slightly vs. prior

Next article07 06 2016 | by Victor Xing | Central Banks

June FOMC minutes: uncertainties at home and abroad