The June Employment Report looks to be reflecting offsets to the May prints -- it should not be taken at face value. The trends seem to be consistent with moderate 2.0-2.5% Real GDP Growth in Q216.
Stocks rallied sharply in responese to the large Payroll print, but that may be because the market overreacted (on the downside) to the weakness in May. Today's rally to almost a new high in the S&P 500 could be in part an overshoot, but any pullback is likely to be modest as US economic growth is ok.
Treasuries should continue to be well bid in the face of international risks along with benign US economic growth.
Today's report should not prompt the Fed to hike rates.
Uncertainties regarding fallout from Brexit and other developments
should hold back the Fed at least through the November elections. The
latest international risk is if Russia attempts any aggression in
eastern Europe.
Here are some points about the June Employment Report:
1. The +287k Payroll jump in June clearly overstates trend job growth.
a. It is an offset to the +11k in May. The 2-month average is 149k, very close to the Q2 average of 147k.
b. The Q2 average slowed from the 196k Q1 average pace, which was too high relative to GDP growth that quarter.
2. The jobs gains could be consistent with a steady Unemployment Rate.
a. The Unemployment Rate rose to 4.9% in June from 4.7% in May. The Rate is back to the Q1 average.
3. Wage inflation was soft in June, but the trend may have picked up.
a. Average Hourly Earnings rose a slight 0.08% m/m, after a fairly strong 0.24% in May. But, the y/y stayed high at 2.6%.
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