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Portfolio > ETFs > Broad Market

June Payrolls Surge, but Probably Not Enough to Spur Fed

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Jobs increased by 287,000 in June, the Bureau of Labor statistics announced on Friday, and unemployment increased slightly from 4.7% in May to 4.9%.

BLS noted that the increase in unemployment offset losses in May and brought it back in line with levels seen in August 2015 through April.

The bulk of the increase in jobs came in the leisure and hospitality, and health care and social assistance sectors, which added 59,000 and 58,000 jobs respectively. Information added 44,000 jobs, while financial activities added 16,000.

Jim O’Sullivan, chief U.S. economist for High Frequency Economics, noted that the “strong rebound” in payrolls is “consistent with a still fairly strong trend.” HFE had predicted an increase of 210,000 and 4.7% unemployment.

“We believe the trend remains more than strong enough to keep the unemployment rate declining over time, consistent with additional upward pressure on wage gains,” O’Sullivan wrote in a market commentary. “Wage gains have already accelerated a little, with this month’s low month-over-month reading likely due to seasonal adjustment issues — June 2015 was even weaker.”

O’Sullivan added that if labor market strength is sustained, the Fed will likely begin tightening monetary policy “before too long.” He predicted the Fed will “almost certainly remain on hold at the July 26-27 meeting.”

However, Rick Rieder, chief investment officer of global fixed income at BlackRock, doesn’t believe that growth will be sustained. He wrote in a commentary that although the report “provided a decent upward surprise,” the pace of jobs growth over the last few years is “unlikely to be sustained […] as reduced corporate profits and political uncertainties take their toll.”

Reider doesn’t believe the Fed will be under “much pressure to hike rates anytime soon,” offering that it “might do one hike this year, but likely won’t be able to do that one given global economic, geopolitical and competitive monetary policy dynamics.”

Noting the increase in jobs in the leisure and information sectors (which BLS attributed to the end of the strike at Verizon that involved nearly 40,000 workers), Rieder said that a “secular transition from a manufacturing employment base to one based on services and information technology” is “firmly in place.”

Chris Gaffney, president of EverBank World Markets, was pleasantly surprised by the report. “Job numbers surprised investors again this month but this time on the positive side as the June data beat estimates by over 100k,” he wrote in a commentary. “The FOMC is definitely breathing a sigh of relief as this report indicates the May reading was a ‘one off’ and confirms that the U.S. labor market is still relatively healthy.”

Gaffney also doesn’t believe the Fed will raise rates in 2016, although he expects the jobs report will bring the possibility of a December increase “back into the conversation.”

He added that “the dollar is the biggest beneficiary of the jobs numbers as the dollar index spiked higher after the data.”

— Read Fed Left June Rates Unchanged Because of Jobs Report, Brexit Vote on ThinkAdvisor.


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