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Fast Comment USEmployment Report June: Strong employment gains, but weak wage growth

  1. Strong employment gains, but the unemployment rate rose to 4.0 percent
  2. Weak wage growth, despite tight labour market
  3. We continue to forecast two more rate hikes this year
Strong employment gains, but the unemployment rate rose to 4.0 percent
Total non-farm payroll employment increased by 213,000 in June, slightly stronger than the consensus expectation of 195,000. The strong print was further amplified by a total net revision of 37,000 of the previous two months. The underlying pace of employment growth close to 200,000 per month at this late stage in the cycle is impressive and well above the growth rate necessary to keep up with population growth. Despite strong employment growth unemployment increased slightly from 3.8 % to 4.0 %, as the labour force participation rate rose.
Weak wage growth, despite tight labour market
Wage increases have been slower than could be expected considering the continuing tightening of the labour market. Although wage growth has been trending upward, the pace has been slow. In June, wage growth was a disappointing 0.2% m-o-m, which left the y-o-y rate at 2.7%. Nevertheless, with other measures of earnings showing more of a pick-up, that is not going to be a deal breaker for the Fed, in our view.
We continue to forecast two more rate hikes this year
Overall, employment growth is strong, and we expect that the resulting tightening in labour market conditions will contribute to a gradual pick-up in wage pressures. Also, inflation has increased and the core PCE inflation rate hit 2% in May for the first time since April 2012. In that environment, we still expect the Fed to hike interest rates an additional two times this year.


Source: Macrobond

 


Source: Macrobond

 


Source: Macrobond

Disclaimer

Anders Bergvall

Anders Bergvall

Senior Economist

Thematic analysis and USA

anbe83@handelsbanken.se

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