Group Economics
US Watch
Macro & Financial Markets Research Maritza Cabezas, +31 20 343 5618
Job market September rate hike likely
5 June 2015
The labour market remains strong, suggesting the slowdown in economic activity will prove temporary. May’s nonfarm payrolls rebounded to 280K up from 221K the previous month. The unemployment rate edged up to 5.5% from 5.4%. This is the last job market report before the June 17th FOMC meeting and therefore we expect it to shape the view of Fed officials in a meaningful way, supporting a rate hike in September 2015.
Job growth solid, report strong Nonfarm employment increased 280K in May, up from 221K in
Chair Yellen in her most recent intervention has said that if the
April. This was higher than consensus of 226K. The details of
labour market strengthening is confirmed and inflation readings
the report were strong and suggests that the slowdown in
continue to improve, liftoff would likely come before the end of
momentum of the labour market in the first quarter was mainly
the year. We think the labour market will improve further.
due to temporary factors. March and April were revised upward by a cumulative 32K. The unemployment rate edged up to
Other labour market indicators broadly improving
5.5% from 5.4% the previous month as more people entered
The Fed looks at a large set of indicators to determine the
the labour market (397K).
health of the labour market. The number of job openings has risen impressively, while more workers are quitting their jobs,
Service-providing employment strong
signalling confidence in the ability to find a new job. Meanwhile
Turning to the establishment survey, education and health
jobless claims, measuring unemployment benefits, continue
added the most jobs at 74K, followed by professional business
trending at historical lows. In the past few months, the
services at 63K. Construction saw some moderation in hiring
participation rate is improving at a snail pace, increasing to
increasing 17K compared to 35K the previous month.
62.9% from 62.8%. We think that demographic forces are
Manufacturing (including oil and gas) continue to show modest
exerting downward pressure on the participation rate, so this
job gains, likely as a result of the impact of the strong dollar
slight improvement could be seen as a cyclical increase.
which affects the export manufacturing industry and the lower oil prices, which are taking their toll on the energy-related
US economy adds 280K jobs
industry.
000’s
Wage growth firming Wage growth continued to pick up. Average hourly earnings increased 0.3% in May up from 0.1% the previous month. On a year-on-year basis, wage growth was 2.3%, edging up from 2.2% the previous month. Other measures of wage growth including unit labour costs and the employment cost index have been trending upwards more convincingly. We think that wages will continue to strengthen as the labour market tightens further.
%
600 400 200 0 -200 -400 -600 -800 -1000
12 10 8 6 4 2 0 06
07
09
10
Non farm payrolls
FOMC should prepare for liftoff in next meeting For the Fed we judge that this report will give more confidence to the FOMC that the economy is on the right track, setting the scene for a rate hike in September. This is the last job market report before the June 17th FOMC meeting and therefore we expect it to shape the view of Fed officials in a meaningful way. In general, FOMC members, according to the minutes, see labour market conditions improving.
Source: Thomson Reuters Datastream
12
13
15
Unemployment (rhs)