8 Jun 2015
Strong US employment report suggests Fed might hike rates in September – Wells Fargo
FXStreet (Barcelona) - Economists at Wells Fargo Securities, review the US employment data release and further predict September as the likely timing for the Fed rate normalisation to begin.
Key Quotes
“May’s 280,000 gain in payrolls returned the pace of job gains to our expected trend of 200,000+ for all of 2015, despite what may appear as significant monthly volatility. Revisions also showed that hiring in March and April was stronger by 32,000 jobs than previously estimated. Over the past three months, job gains have averaged 207,000. The job gains are consistent with our expectation of consumer spending growth of 2.5-3.0 percent for the second quarter.”
“The unemployment rate edged up to 5.5 percent last month, but the increase came amid a surge in the labor force (+397,000) that pushed the participation rate up to 62.9 percent. The unemployment rate edged up to 5.5 percent last month, but the increase came amid a surge in the labor force (+397,000) that pushed the participation rate up to 62.9 percent.”
“Average hourly wages rose 0.3 percent in May and are now up 2.3 percent over the past year, which matches the best 12-month increase in the current cycle. Although watched dutifully by the Fed and many other analysts, we prefer looking at aggregate labor income, which also incorporates job gains and average hours worked, as an indicator of consumer spending. The average workweek held steady in May, but the pickup in average hourly wages and stronger hiring pushed the three-month annualized rate of the income proxy up to 3.7 percent. This supports our view that consumer spending will accelerate over the second quarter, despite weak reports of spending in April.”
“Although Fed officials have stated a pickup in wages is not a precondition for raising rates, the pickup in average hourly wages should give them confidence that the labor market is nearing full employment and inflation will firm.”
“While a June liftoff in the fed funds rate remains unlikely, the report supports our outlook that the data-dependent Fed may begin to raise rates in September.”
Key Quotes
“May’s 280,000 gain in payrolls returned the pace of job gains to our expected trend of 200,000+ for all of 2015, despite what may appear as significant monthly volatility. Revisions also showed that hiring in March and April was stronger by 32,000 jobs than previously estimated. Over the past three months, job gains have averaged 207,000. The job gains are consistent with our expectation of consumer spending growth of 2.5-3.0 percent for the second quarter.”
“The unemployment rate edged up to 5.5 percent last month, but the increase came amid a surge in the labor force (+397,000) that pushed the participation rate up to 62.9 percent. The unemployment rate edged up to 5.5 percent last month, but the increase came amid a surge in the labor force (+397,000) that pushed the participation rate up to 62.9 percent.”
“Average hourly wages rose 0.3 percent in May and are now up 2.3 percent over the past year, which matches the best 12-month increase in the current cycle. Although watched dutifully by the Fed and many other analysts, we prefer looking at aggregate labor income, which also incorporates job gains and average hours worked, as an indicator of consumer spending. The average workweek held steady in May, but the pickup in average hourly wages and stronger hiring pushed the three-month annualized rate of the income proxy up to 3.7 percent. This supports our view that consumer spending will accelerate over the second quarter, despite weak reports of spending in April.”
“Although Fed officials have stated a pickup in wages is not a precondition for raising rates, the pickup in average hourly wages should give them confidence that the labor market is nearing full employment and inflation will firm.”
“While a June liftoff in the fed funds rate remains unlikely, the report supports our outlook that the data-dependent Fed may begin to raise rates in September.”