The horrible NFP doesn’t bode well for rate hikes. Here is the view from BNP Paribas:
Here is their view, courtesy of eFXnews:
The shockingly low payrolls gain in May provides further evidence that the economy is showing clear signs of slowing and supports our view for no rate hikes this year.
Just 38,000 jobs were added in May, well below our and consensus expectations (110k and 160k, respectively), with the unemployment rate falling a staggering 0.3pp to 4.7% on a drop in the participation rate and earnings in line with expectations (0.2% m/m, 2.5% y/y).
On top of a weak headline print, the 2-month net revision was -59,000. Over the last three months, job gains have averaged just 116,000 per month.
While the report was negative across the board, the largest downside surprise, relative to our forecast, came in the construction and wholesale sectors. The only bright spot in the report came from healthcare, which added 46k jobs in the month.
The Verizon strike appears to have subtracted roughly 35,000 information sector jobs. The BLS noted in its official report that “a strike resulted in job losses in information” and cited 35,000 workers in the telecommunications industry which were not on company payrolls during the survey reference period. Even adjusting for this strike payroll growth was very disappointing (73k).
The household survey showed a mere 26,000 gain in employment in May with a 0.2pp decrease in the participation rate to 62.6% (last: 62.8%) that pushed the unemployment rate down 0.3pp to just 4.7% (4.69% unrounded).
Average hourly earnings rose 0.2% m/m, below consensus expectations, following a 0.4% increase in April; the y/y rate stayed at 2.5% y/y.
The current unemployment rate (4.7%) stands 0.1pp below the lower bound of the FOMC’s latest central tendency for the long-term unemployment rate (or non-accelerating inflation rate of unemployment) of 4.8%-5% Without the change in participation rate, the unemployment rate would have been 5.1%.
The underemployment rate, which measures unemployed, involuntary part time, and marginally attached workers, was unchanged at 9.7%.
We expect the Fed to view this report as negative. This supports our view for the FOMC to keep rates on hold throughout 2016 and 2017.
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