NFP Headline & Earnings Miss


US nonfarm payrolls increased only 75k in May after a revised 224k jump in April (was 263k) and 153k March gain (revised from 189k). That’s a net -75k in revisions. The unemployment rate was steady at 3.6%. Average hourly earnings were up 0.2%, as in April, for a 3.1% y/y clip versus 3.2% y/y previously. Average hours worked held at 34.4. The labour force bounced 176k from -490k, with household employment up 113k from -103k. The labor force participation rate was unchanged at 62.8%. Private payrolls were up 90k, with the goods producing sector adding 8k, construction up 4k, and manufacturing up 3k. Jobs in the service sector increased 82k with a 27k gain in health and a 26k increase in leisure, while retail trade employment dropped 8k, with IT down 5k. Government jobs declined 15k.

The jobs report is big miss and will increase speculation for a Fed rate cut. Risks for an easing this year have increased following the weak jobs report, and particularly with the slowing in the pace of earnings growth. Action as soon as the June 18, 19 FOMC meeting seems unlikely however (the next meeting is July 30, 31). It’s hard to tell how much of the slowing is a function of trade and other uncertainties, or a tight labour market. And most Fed officials have indicated they want to see how the trade frictions impact and how the economy plays out in coming months. Though there are low expectations for any action later this month, the softer wage data certainly leaves the door open for a move and will give the FOMC cover.

EURUSD rallied to 1.1310, USDJPY breached 108.00 and GBPUSD 1.2745. Gold continues to rally and holds $1340 and USA500 touched 2859.80.

Stuart Cowell

Head Market Analyst

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