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US NFP – As solid as advertised – Standard Chartered

“After a week swirling with negative headline risks, May non-farm payroll (NFP) additions of 223,000 jobs offered a modicum of relief, a dose of positive fundamental news on the US economy,” explains Mike Moran,  Chief Economist – Americas at Standard Chartered.

Key quotes

“This solid job print is marked by broad improvement even if it is not the strongest monthly gain of the year (this accolade remains with the 324,000 print in February). The 6- and 12-month moving averages returned to early 2017 highs of 202,000 and 196,900, respectively, while the drop in the unemployment rate (U/R) to 3.755% (unrounded) marks the lowest since 1969. Average hourly earnings (AHE) printed the strongest m/m gain (0.3%) since December, bringing the y/y rate back towards our forecasted 2.7%. Particularly encouraging is that production/non-supervisory workers led gains (2.77%), surpassing headline AHE for the first time since January 2015, suggesting that wage gains are broadening.”

“Job creation by sector also demonstrated breadth. The usual suspects (Figure 5) once more led gains. However, with trade friction moving to the fore, trade and manufacturing sectors continued to perform well, though they deserve close scrutiny in the coming months. While not the biggest employers, construction and manufacturing jobs posted the highest growth across sectors at 4.1% and 2.1% y/y in May. Lastly, this report was relatively unfettered by weather-related distortions; those unable to work due to weather were a low 34,000.”

“The May job report adds to a string of encouraging data points for FOMC consideration on 13 June. With a June hike effectively priced in, the debate on whether the FOMC will raise rates three or four times this year gets new life. We still think the Fed can push through four hikes (total) in 2018 and another two in 2019.”

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