NEW YORK (Reuters) - U.S. job growth surged more than expected in June and employers increased hours for workers, signs of labor market strength that could keep the Federal Reserve on course for a third interest rate increase this year despite benign inflation.
Non-farm payrolls jumped by 222,000 jobs last month, the Labor Department said on Friday, beating economists’ expectations for a 179,000 gain. Data for April and May was revised show 47,000 more jobs created than previously reported.
U.S. stocks gained on the news, with the S&P 500 futures up 0.25 percent after being flat just before the numbers were released.
U.S. Treasury futures gained while the U.S. dollar trimmed its gains, with the dollar index .DXY flat versus up 0.2 percent just before the numbers.
SHYAM RAJAN, HEAD OF U.S. RATES STRATEGY AT BANK OF AMERICA MERRILL LYNCH IN NEW YORK:
“The larger message is: this does not necessarily alter the moves that we’ve seen over the last two weeks in any way. In the last two weeks, yields have risen because of what the (German) Bund market has done and what yields in Germany have done. This in the short term at least does not add a meaningful stop to that move. So I think this is status quo as it relates to the U.S., so we’re going to continue to be driven by Bunds and European yields.”
“Given the focus of the Fed on inflation, and the fact that the inflation indicators in this report were slightly disappointing, I think the market has a toned down reaction to it, but in the bigger picture it’s still a pretty decent report. The headline figure was decent, the pickup in the unemployment rate was because the participation rate went up, so it’s not a bad pickup in the unemployment rate.”“The bond market has already priced in an extremely slow Fed. It’s much slower than the median dots already. It’s not massively altering its course based on this report, because it’s kind of a mixed bag report. But I do think strongly that we’ll go back to being driven by Europe in the next couple of weeks.”
JJ KINAHAN, CHIEF MARKET STRATEGIST AT TD AMERITRADE IN CHICAGO:
“I was surprised by a few things in it, we didn’t have a lot of healthcare jobs created. That was the first time in a long time healthcare wasn’t in our top three. And there wasn’t much weakness in retail as I thought there would be, so I am interested to see what happens in those two going forward.
”There just isn’t any wage pressure at all and that is a little bit concerning, as you can’t continue to get all this job growth without wage pressure. So something is not adding up at all. Or the gig economy is bigger than we think it is.
JIM PAULSEN, CHIEF INVESTMENT STRATEGIST AT THE LEUTHOLD GROUP, MINNEAPOLIS, MINNESOTA:
”On the surface, this is a goldilocks report. Solid job gains, uptick in participation and no wage pressures. Good for stocks. With any productivity gains, this suggests a real GDP growth rate north of 3.0 percent. The problem though is the same issue faces the financial markets now that was there before the report. And that is that if we are creating 200,000 jobs with near 4.0 percent unemployment, inflation is going to soon increase putting pressure on the Fed and ‘bond vigilantes.’ So a solid report particularly for stocks this morning but the financial markets still face the same issue...Will inflation rise soon pushing yields higher?”
“A positive jobs report which surpasses expectations. With unemployment so low and labor markets becoming tight, job creation is a challenge so growth is a positive sign for the US economy.
“With only one more rate hike expected this year, investors should turn their attention to the Fed, which will soon attempt to shrink its behemoth $4.5 trillion balance sheet. Success would be if the Fed can gracefully divert the excess liquidity it’s created from financial assets to the real economy.
“Since rates began to rise in December 2015, financial conditions have loosened and hence the Fed is likely to remain on a tightening path, notwithstanding subdued inflation or a persistent turn in the jobs market. Looser financial conditions are also a key reason for the strength in the stock market, and this bull market should persist provided the Fed doesn’t tighten conditions too much or too fast.”
“Hiring is back to where it has been throughout much of the eight-year-old economic expansion. With a June surge in hiring and upward revisions to payroll gains for April and May, the past three months are looking better than what we’d been thinking. Growth is modest, not spectacular, which is to be expected for a mature expansion.”
“Once again, the buzz kill on the jobs report is the lack of more substantial wage growth. Average hourly earnings are up 2.5 percent over the past year. This suggests that we’ve not yet checked off the ‘full employment’ box, meaning more progress can be extracted from the job market. More than 5 million Americans still work part-time who’d like to have full-time work.”
RYAN DETRICK, SENIOR MARKET STRATEGIST FOR LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA:
”It’s definitely a step in the right direction. We’re looking at now four of first six months of the year with 200,000 jobs or more. Clearly some of the economic data we saw in the second quarter was on the weak side so it’s nice to see the jobs market continues to show life and by no means is it showing signs of weakness.
”It definitely seems the economy is on firm footing and this is a nice solid report so we can look forward to earnings season coming up.
”The one potential slight concern was the average wages didn’t raise quite so much as some of those early estimates. But that falls in with some of the inflation data we’ve been seeing.
”After yesterday’s big sell off this is kind of a relief. We wouldn’t be surprised if we had a little bit of a relief bounce but this is a Friday and this is summer time. These are light volume days.
MARK GRANT, CHIEF STRATEGIST AND MANAGING DIRECTOR OF HILLTOP SECURITIES, FT. LAUDERDALE, FLORIDA:
”Politics aside, the U.S. economy is picking up again. You can point fingers where you like but the numbers are encouraging.
Consensus had been for increase of 178,000 and 220,000 new jobs were added in June. The ‘Doom and Gloom’ crowd just got subdued. That said, I still think that we are done with rate hikes for this year. I believe the Fed’s outlook will be significantly changed when Mr. Trump appoints four new members of the Fed. I also think that significant pressure will come from Mr. Mnuchin & Co. to hold interest rates down.”
MICHAEL ARONE, CHIEF INVESTMENT STRATEGIST, STATE STREET GLOBAL ADVISORS, BOSTON:
“The topline number is quite strong, we saw positive revisions to the previous month and the average for this year is consistent with the average employment per month from last year. Again, it’s not showing any real deceleration in the labor market.
“We see an uptick in wages a little bit, so that again indicates with the tightness in the labor market perhaps we’ll see some wage acceleration. Lastly, the gains were broad-based across industries, so that’s always a good thing as well. I always look to see if it was driven by one or two industries, but this had some solid gains across the board. It’s interesting, both the stock market and bond market seem like it this morning, as stocks ticks up and yields have ticked a bit lower.
“The Fed is on hold for the summer months. I don’t think they’ll do anything in terms of a rate hike or begin the balance sheet run-off process at the end of July. They don’t meet in August so it’s probably not until at least until September where the Fed begins to tighten monetary policy conditions again, and I don’t think this report does anything to change that.”
TOM DI GALOMA, MANAGING DIRECTOR, SEAPORT GLOBAL, NEW YORK:
“On the surface it looks like a solid report, there’s an uptick in the unemployment rate, however.
”What’s going on with rates is we’ve moved a very big way in a very short period of time. I think the market’s a bit oversold, I wouldn’t be a bit surprised if we saw some pretty decent buying around these levels. If anything we’re probably due for a bit of a rally. I don’t think it’s done anything to change the Fed’s view.
”It’s just a little bit stronger than expectations. I think the Fed is probably more worried about the balance sheet than they are about moving rates at this point, they seem to be more focused on that. If anything I think the Fed doesn’t move rates until December and focuses more on the balance sheet in the September time frame.”
SHANNON SACCOCIA, HEAD OF ASSET ALLOCATION AND PORTFOLIO STRATEGY, BOSTON PRIVATE WEALTH, BOSTON:
“This is a pretty good report for the equity market. The most notable piece of information is the average hourly earnings and its implication on inflation. The Fed wants to see it in excess of 3.0 percent. We are still hovering at 2.5 percent level. The Fed wants to get in one more rate hike this year.
But there’s no justification for them to accelerate as far as their path of rate hikes and tapering bond reinvestments. On the other hand, there is enough for the equity market to not worry of economic softness after the ISM manufacturing report earlier this week and this jobs report.”