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TD Securities analysts point out that the US Nonfarm payrolls surprised sharply to the upside in June, recovering to a solid 224k print (vs a consensus of 160k) which followed a soft 72k in May.

Key Quotes

“The 3-month and 6-month averages remain solid at around 170k “” more than sufficient to absorb new entrants into the labor force. The strong payroll number was explained by a notable rebound in private-service providing jobs, which jumped to 154k from 72k in May.”

“The unemployment rate ticked up a tenth to 3.7% in June reflecting an increase in the participation rate to 62.9%. Note that despite the 0.1pp increase in June, the participation rate remains below the highs at the start of the year. Separately, average hourly earnings rose 0.2% m/m, below our and the market’s expectations for a 0.3% increase.”

“The annual pace of wage growth remained unchanged at 3.1% y/y for a second consecutive month, indicating no evidence of price pressures brewing in the labor market. Average weekly hours remained unchanged at 34.4 in June.”

“On net, we believe the strong payroll print should ease some concerns from Fed officials that domestic activity could be slowing faster than anticipated on the back of spillovers from trade concerns and global growth. However, we continue to believe the Fed will deliver a 25bp cut in July as global growth fears remain present.”

“We look for 75bp of Fed eases in 2019, followed by a further 75bp of cuts in 2020.”