- Headline jobs growth comes above +200K for the fifth time in 2017.
- US wage growth holds at+2.5% y/y as the unemployment rate drops back to 4.3%.
- The retail trading crowd continue to reduce net-long US Dollar positioning, which be a sign of the greenback stabilizing.
The US labor market continued to exhibit strength in July, with the headline Nonfarm Payrolls figure coming in at +209K, easily beating expectations of +180K. The June reading was revised slightly higher to +231K from +222K; overall, the net-two month revision was +2K.
Today’s reading of +209K is on the high end of estimates,given other data points ahead of the release. The July US ISM Services/Non-Manufacturing index decreased to 53.9 (from 57.4 previously) while the July ADP Employment Change showed jobs growth of +178K. Using a 10-year rolling model, the ADP report and the ISM Services report account for 91% of the changes in the NFP figure (R^2 = 0.91), and, in sum, these proximal trackers of the US labor market were suggesting a pace of jobs growth north of +180K.
In addition to the headline beat relative to expectations, other parts of the report painted a stable picture of labor force strength. The labor force participation rate edged higher, up to 62.9% from 62.8%, which makes the drop in the unemployment rate (4.3% from 4.3%) all the more impressive. Wage growth held at +2.5% y/y, bucking expectations of a dip to +2.4%.
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 +115K 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, although hike odds were moving higher after the data. Overall, the July US Nonfarm Payrolls report was all-around a solid report that could very well prove to be a stabilizing force for the US Dollar in the near-term.
Here are the data driving the US Dollar this morning:
- USD Unemployment Rate (JUL): 4.3% as expected, from 4.4%.
- USD Change in Nonfarm Payrolls (JUL): +209K versus +180K expected, from +231K (revised higher from +222K).
- USD Labor Force Participation Rate (JUL): 62.9% from 62.8%.
- USD Average Hourly Earnings (JUL): +2.5% versus +2.4% expected, from +2.5% (y/y).
Chart 1: DXY Index 1-minute Chart (August 4, 2017 Intraday)
Immediately following the data, the US Dollar traded higher versus the Euro and the Japanese Yen, with the Dollar Index (DXY) gaining from 92.81 ahead of the data to as high as 93.18 at the time this report was written. EUR/USD traded between 1.1825 and 1.1867 around the data, while USD/JPY traded between 110.06 and 110.77.
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--- Written by Christopher Vecchio, Senior Currency Strategist
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