US Dollar Shrugs at NFP Beat as Unemployment Rises, Wage Growth Stalls
- Headline jobs growth comes above +200K for the fourth time in 2017.
- US wage growth muddling around+2.5% y/y as Unemployment Rate increases to 4.4%.
- Given the June ISM Services and ADP Employment reports, today’s headline NFP jobs data is a solid print.
The US labor force continued to show signs of growth in June, with the headline Nonfarm Payrolls figure coming in at +222K, easily beating expectations of +178K. The May reading was revised slightly higher to +152K from +138K; overall, the net-two month revision was +47K.
Today’s reading of +222K is on the high end of estimates,given other data points ahead of the release. The June US ISM Services/Non-Manufacturing index increased to 57.4 (from 56.9 previously) while the June ADP Employment Change showed jobs growth of +158K. Using a 10-year rolling model, the ADP report and the ISM Services report account for 89% of the changes in the NFP figure (R^2 = 0.89), and, in sum, these proximal trackers of the US labor market were suggesting a pace of jobs growth north of +155K.
Despite the headline beat relative to expectations, other parts of the report painted only a mixed picture of labor force strength. The labor force participation rate edged higher, up to 62.8% from 62.7%, accounting for the bump in the unemployment rate (4.4% from 4.3%) and the underemployment rate (8.6% from 8.4%). Wage growth held increased to a meager +2.5% (after the May figure was revised lower) and remains below the +2.8% clip – the best level in seven years – set earlier in 2017.
It’s important to keep in mind that the US economy doesn’t need such strength in the headline figure to maintain the unemployment rate at its current “full employment” level. According to the Atlanta Fed jobs calculator, the US economy needs to add +118K jobs per month in order to see the unemployment rate at 4.3% through the end of the year.
As far as rate hikes are concerned, this report is a mixed bag. Fed funds rate expectations continue to price in March 2018 as the most likely period for the next rate move. Soft wage data and a rising unemployment rate offer strong enough counterpoints to the headline beat that the June NFP report is a bit of a wash from the market’s perspective.
Here are the data driving the US Dollar this morning:
- USD Unemployment Rate (JUN): 4.4% versus 4.3% expected unch.
- USD Change in Nonfarm Payrolls (JUN): +222K versus +178K expected, from +152K (revised higher from +138K).
- USD Labor Force Participation Rate (JUN): 62.8% from 62.7%.
- USD Average Hourly Earnings (JUN): +2.5% versus +2.6% expected, from +2.4% (revised lower from +2.5%) (y/y).
Chart 1: DXY Index 1-minute Chart (July 7, 2017 Intraday)
Immediately following the data, the US Dollar initially slipped back versus the Euro and the Japanese Yen, with the Dollar Index (DXY) falling from 95.81 ahead of the data to as low as 95.75 at the time this report was written. However, the DXY Index soon rebounded to as high as 96.14. EUR/USD traded between 1.1381 and 1.1440 around the data, while USD/JPY traded between 113.69 and 113.91.
--- Written by Christopher Vecchio, Senior Currency Strategist
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