Risks in the June Employment Report

The June Employment Report, due July 5,  risks throwing more water on the idea of a 50 BP rate cut at the July 30-31 FOMC meeting.  This is because there are reasons to expect Payrolls and Average Hourly Earnings to speed up.  Whether the Unemployment Rate rises, falls or is unchanged is a wild card.  Consensus is in line with these considerations.

The risk is for June Payrolls to speed up from May's +75k.  While the Unemployment Claims data have not begun to trend down, their rate of deterioration between Payroll Survey Weeks has slowed.  Consensus looks for +158k, a bit below the +164k m/m average over the first 5 months of the year.  It will be of particular interest to see if Construction Jobs sped up in June.  If they do, the speedup would argue that temporarily bad weather was a contributing factor to the weakness seen in May.  It also will be of interest to see if the Nonfarm Workweek rises to 34.5 Hours, after having slipped to 34.4 Hours in the prior 2 months.  This could be a harbinger of faster job growth ahead.

Average Hourly Earnings risk speeding up to +0.3% m/m or more from +0.2% in May.   Consensus estimate is 0.3%.  Calendar considerations argue for a high print this month.  The y/y would edge up to 3.2% from 3.1% with a 0.3% m/m increase.

There are reasons to think the Unemployment Rate will edge up to 3.7% from 3.6%.  The unrounded Rate was 3.62% in May, so it is closer to being rounded up to 3.7% than down to 3.5%. And, Continuing Claims rose somewhat between the May and June Survey Weeks.  But, this evidence is not reliable.  Consensus looks for an unchanged 3.6%.

The other important US economic report is the June Mfg ISM (due July 1).  All the regional surveys appear to have fallen in June.  But, some were at least in part catch-up to the decline in the May Mfg ISM.  The Chicago PM, pushed ahead 1 month, has done a good job predicting the m/m direction of the Mfg ISM.  If this relationship continues to hold, the Mfg ISM would rise in June and fall in July.   A June increase would be a surprise.  Consensus looks for a decline to 51.0 from 52.1 in May.