FXS: US: Payrolls strong but wage data will keep the Fed cautious – BTMUF
FXStreet (Barcelona) - Derek Halpenny, European Head of GMR at Bank of Tokyo-Mitsubishi UFJ, reviews the US labour market data release and further notes that the data was below expectations but the positive trend is clear.
Key Quotes
“”We stated yesterday that Yellen had the last piece of the jigsaw puzzle (strengthening wage growth) in her hand and was close to completing the puzzle in order to raise rates. Well after the data we would admit that perhaps the jigsaw piece has been laid down again (with a smile from Yellen no doubt!) providing a bit more time before a final decision is made on the timing of the first rate increase.”
“That is not to say the wage data was particularly bad either. We would still argue that there is plenty of evidence pointing to a pick-up. For example, if you assess the performance of hourly earnings over the first half of 2015, the pick-up is clear to see. Annualising the 6-month change in earnings and averaging that over the last three months gives you a rate of growth of 2.45%, the strongest since the collapse in wage growth following the 2008-09 recession.”
“The other favoured measure of Chair Yellen on gauging the spare capacity in the labour market – the difference between the U3 and U6 unemployment rates continues to narrow, underlining the increased utilisation of workers who are on the periphery of the labour market. The U6 rate fell by 0.3ppt in June.”
“The jobs market remains strong and two further strong reports before the September meeting would probably still be enough to justify a move at that meeting. Furthermore, the unemployment rate at 5.3% is already at the top of the 5.2-5.3% estimate for the Q4 average and again, as usual, the FOMC look to have been too cautious on the speed of decline. Yes, the drop yesterday was more about shrinkage of the labour force, but the trend is still clear.”
“But, as we stated yesterday, the jobs report this month was important ahead of the semi-annual testimony from Chair Yellen on 15th July and the FOMC on 29th July. That will be the meeting before the September meeting and hence these events this month will be key for communication on timing.”
“Will the FOMC be willing to signal a September move at the end of this month? Probably not. Of course if the FOMC is genuinely data-dependent it wouldn’t be in a position to do that anyway and then could still hike in September. We will see! What we would argue though is that the 27% probability we calculate as currently priced for a September rate increase is too low – it’s a much closer call than that. If the data remains robust, like we think it will, that will by key for the dollar although admittedly the data may allow Yellen to be more cautious in her semi-annual testimony than we were assuming.”
