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Fast Comment USEmployment growth shifting down and weak wage growth

  1. Weak payrolls – US economy adds only 75,000 jobs in May
  2. Moderate wage growth – we do not expect wage growth to rise much further in this business cycle
  3. Will the Fed cut rates this year?
Weak payrolls – US economy adds only 75,000 jobs in May
Total nonfarm payroll employment increased by 75,000 in May, well below the consensus expectation of 175,000. The weak print was further amplified by a total net revision of -75,000 for the previous two months. All in all, after rising at an unusually strong pace of well over 200,000 per month in 2018, employment growth is now trending lower. However, the labour market is still strong, with job growth above the growth rate necessary to keep up with population growth. The unemployment rate was unchanged at 3.6 percent last month, well below Fed officials’ current 4.3 percent estimate of the long-run natural rate of unemployment.
Moderate wage growth – we do not expect wage growth to rise much further in this business cycle
In May, wage growth was a disappointing 0.2 percent m-o-m, which dragged the annual rate down to 3.1 percent from 3.2 percent in April. All in all, we do not think wage growth will rise much further in this business cycle, as a downward trend in employment growth should moderate wage pressure.
Will the Fed cut rates this year?
There are clear signs of underlying weakness in the US economy. More than half the growth in GDP in the first quarter was driven by temporary factors and the ISM manufacturing index in May hit its weakest level in two-and-a-half years. Overall, we expect that GDP growth will gradually slow this year. The slowdown will drive employment growth gradually lower in 2019 compared to 2018. Our long-held view has been that the economic slowdown and muted inflation will lead the Fed to remain on hold this year and that its next move will be to cut rates next year. But the recent escalation of the trade conflict and softer tone from the Fed has clearly increased the likelihood that the Fed will cut rates already this year.


Disclaimer
Anders Bergvall

Anders Bergvall

Senior Economist

Thematic analysis and USA

anbe83@handelsbanken.se

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