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Jobs Report Enough to Keep Fed from Raising Rates in June?

Friday, May 6, 2016

Futures were indicating a modestly negative open for the market ahead of the jobs report, with the negativity increasing after the weaker-than-expected BLS non-farm payroll numbers. Hard to see this initial reaction remaining in place throughout today’s session as the jobs report isn’t all bad, with the report’s internals showing positive momentum in a couple of key areas like wages and the workweek.

The ‘headline’ tally came in at 160K vs. estimates of 205K and March’s 208K (revised down from 215K). The unemployment rate remained unchanged 5%, with the labor force participation rate ticking down 62.8% from 63% the month before. Revisions were modest but negative, with net revisions for the prior two months of -19K. In other key pieces of the report, the average workweek ticked up, while average hourly earnings maintained the positive momentum from the month before. Average hourly earnings increased +0.3% from prior month’s level, a +2.5% year-over-year gain.

The ‘headline’ miss notwithstanding, I think this isn’t way off the labor market’s recent trend line, with steady job gains month after month even in the face of erratic economic data from other parts of the economy. The latest example of this is that while Q1 GDP growth was barely in positive territory, the labor market has held its ground. With the unemployment rate holding steady, wages growing nicely and even the workweek finally starting to tick up, it is hard to see the Fed seeing this report as a sign of weakness in the labor market. My sense is that they will have to raise rates in June and then after the November elections in the December meeting.  

Sheraz Mian
Director of Research

Note: In addition to this daily pre-open article about the market, economy, and the corporate earnings picture, Sheraz Mian also provides detailed earnings analysis in his weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz Mian publishes a new article, please click here.

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