Fra BNP Paribas:
KEY MESSAGES
Non-farm payrolls bounced to 224,000 in June, in line with our expectation for a 220,000 print and above consensus of 160,000. Despite the strong headline gain, the report
contained dovish details, particularly the unemployment rate rising 0.1pp due to a 0.1pp
bounce in participation and wage growth remaining flat y/y. We think the June employment report likely takes away the potential for a 50bp cut at the Fed’s 31 July meeting, but supports our expectation the FOMC will still deliver a 25bp cut then.
Hiring solid, details dovish, insurance cut still a go: Hiring was solid in June, with healthcare and professional & business services again driving service sector job gains. Goods sector hiring also staged a modest comeback, with construction and manufacturing adding jobs at paces above their recent averages.
At the same time, labor force participation rose, driving up the unemployment rate, while wage growth for the month disappointed, leaving y/y wage growth unchanged at 3.1% y/y. These two developments support the notion that slack remains in the labor market yet, consistent with recent comments from SF Fed President Daly and Minneapolis Fed President Kashkari.
While the strong print is likely the final nail in the coffin for a potential 50bp cut at the end of the month, especially after Bullard and Powell both signaled doing so would be “overdone”, we think the Fed is still on track for a 25bp cut given trade uncertainty and the steady downtrend in business sentiment. An insurance cut by definition means getting ahead of a downturn, and waiting for employment to roll likely means being too late to deliver one
