US payroll roulette continues

Keith Wade, chief economist at Schroders, looks at today's non-farm payrolls which beat expectations following last month's disappointing report.

After a disappointing report last month, non-farm payrolls beat expectations in June with an increase of 287k versus expectations of 150k, he comments.

The figures for May were revised down to just 11k, but after today’s release they are looking to be an aberration and the three-month trend is running at a respectable 150k.

Whilst the market may focus on the headline payroll, other details in the report were more mixed. For example, average hourly earnings rose less than expected to 2.6% year-on-year and the unemployment rate ticked up to 4.9%. The latter reflected an increase in workforce participation so can be seen as a sign of strength, but the failure of wages to respond to a tighter labour market remains a feature of the expansion.    

Where does this leave the outlook for US interest rates?, he asks, going on to answer by saying that last month’s payroll report removed any hope of a June rate rise.

Since then, the increase in volatility post-Brexit has left the Federal Reserve’s decision not to tighten looking prescient.

Markets have subsequently gone on to price out any rate rise for two years. Today’s report restores some balance by reminding us that there is life in the US economy and that the Federal Reserve may have to consider a rate rise before the year is out, he concludes.