June payrolls report expected to ease Fed concerns

By Orbex Last updated Oct 31, 2021

Friday’s nonfarm payrolls report from the Bureau of Labor statistics showed that the US economy added a lot more jobs that what was expected. The data showed 287k jobs being added in the month of June, which was more than the 178k job estimates that was penciled in. The year over year growth in wages accelerated to 2.60% from 2.50% previously while the unemployment rate edged higher to 4.90% from 4.70% previously as the number of unemployment rose by 347k. The June jobs report beat estimates by a wide margin, even the most bullish estimates of +210k job gains made by Goldman Sachs.

However, despite the upbeat headline print, the April – May jobs were revised by 6k in aggregate. May’s NFP was revised lower to show that the US economy added only 11k jobs compared to what was initially reported at 38k. This was the weakest pace of job growth in nearly five years. April’s jobs report was revised higher to 144k, from the initial estimates of 123k. In short, the June jobs report had all the elements to feed both the bulls and the bears. The three month average number of jobs was seen rising at a weaker pace, estimated at 147k in the third quarter, down from 195k in the first quarter.

The jobs report suggested that there was a solid rebound in hiring with the services sector leading the way. Job gains came from the leisure activities and retail sales which showed 59k net job gains compared to May’s 3k net job losses. Health care and social assistance added 58.4k jobs up from May’s 47.6k. Verizon strike which impacted the May report strongly reverted in June with 44k jobs added in the industry.

June payrolls report was broadly good but it remains overshadowed by the previous two months of disappointing jobs, which could be not as reassuring as the Fed would like to believe. The FOMC meeting minutes from June saw many Fed officials signal uncertainty in the labor market developments.

The minutes said, “Almost all participants judged that the surprisingly weak May employment report increased their uncertainty about the outlook for the labor market. Even so, many remarked that they were reluctant to change their outlook materially based on one economic data release.”

With the June report out of the way, the Fed could remain on the sidelines meaning that Fed officials would prefer to see more evidence of job growth and a broader improvement in the economy.

In this context, this week’s retail sales data will be the key report to watch for. US retail sales peaked in April, rising 1.30% before pulling back to rise 0.50% in May. Economists forecast that June retail sales data is expected to moderate even more, rising 0.10% on a month over month basis. US consumer price index is also coming out this week and is expected to show a steady pace of growth in inflation at a rate of 0.20%.

The US dollar did not react much to the NFP report on Friday and in fact closed flat. The equity markets, on the other hand, posted strong gains. The S&P500 futures closed Friday with 1.53% gains while the Dow Jones added 250 points to close with gains of 1.40% on the day.