CIBC is out with a review of today’s US non-farm payrolls report and concludes that it’s “nothing to write home about”.
The jobs report showed hiring at a 147K pace in June, above expectations of 110K and the prior two months were revised up by +16K. The US dollar initially jumped on the headlines in part because yesterday’s ADP employment number showed a surprise contraction in jobs.
“Today’s report was
flattered by strong state and local government hiring, especially in state educational services that does not look
durable,” CIBC writes, noting that private sector hiring was ‘pretty soft’.
Still, the jobs market “is still in decent shape and not far from full employment” they write.
Many economists have begun shifting rate cut calls earlier with the market pricing in 51 bps of easing by December but CIBC has yet to make a shift as we wait to see the impacts of tariffs.
“That still gives the Fed the luxury to wait-and-see what happens with inflation. We continue to expect
they will ease policy in December of this year,” CIBC writes.
Many in the market expect to see a downshift in employment in the near future and that could happen if we see a reversal in the education-driven gains in today’s report. CIBC notes that government, healthcare and social assistance accounted for 90% of the gains in the latest report.
The big mystery is why education hiring was so strong in June.
“It’s very hard to decipher what exactly is happening there, but the trend has been gradually higher summer
employment in state educational services, perhaps reflecting the large past increase in population, available state
funding and the need for catch-up after hiring in this category was depressed for the three pandemic years.”
CIBC also sees problems developing in US demographics.
The household survey was mixed, with the jobless rate declining in part because young (16-24) and older workers
(55+) are exiting the labor force, but also due to a modest rise in employment (+93K). Prime-age participation remains
stellar (+83.5%) and adult population growth is still holding up in the survey, although it doesn’t have a great track
record. But one can’t conclude from looking at the household survey that the job market health is at major risk.
Population ageing should imply a further decline in participation, and the jobless rate is still telling us that despite
supply and demand both moving down, they are doing so together keeping the labor market still roughly in balance.
So we wait for next month. At some point the ADP and NFP numbers need to converge, or is there one particular reason why they’re so far apart?
This article was written by Adam Button at www.forexlive.com.