US: Starting to Labour? – ING
James Smith, Economist at ING, suggests that the Friday’s Labour Report
was fairly mixed, with sub-consensus payrolls growth, but better wage
data and it won’t change too many minds on FOMC – the key now lies in
the activity data.
“The employment element of the Friday’s labour report was a little disappointing. The headline non-farm payrolls figure came in at 160k, below consensus although pretty close to the 156k indicated by ADP earlier in the week. The household survey measure of the labour force recorded its largest monthly fall since June last year, which alongside a fairly sharp fall in the household measure of employment and a small tick up in unemployment, kept the unemployment rate at 5%, in line with our forecast.
The only real positive in the data came from wage growth, which came in a touch above consensus with a 0.3% MoM gain. This takes the year-on-year comparison up to 2.5%, which is more in line with the average rate of wage growth indicated by other indicators.
Taken on aggregate, the labour report was probably best described as a fairly neutral and crucially, is unlikely to change too many minds on the FOMC about the timing of the next rate hike.
With financial conditions more settled than back in February (our in-house measure is now around its 2016-low), the key to the next Fed hike lies in the activity data. Following a disappointing run of data in 1Q, concluding with fairly mediocre 0.5% QoQ GDP growth, the Fed now needs to see evidence of a clear pick-up during the second quarter.
For us, we are unlikely to see enough, sustained evidence of this before June’s meeting. Instead, if we do indeed see signs of stronger activity over the next few months, and financial conditions remain stable, then we think that the Fed will feel comfortable with hiking rates in the third quarter, most likely in September.”