We estimate non-farm payrolls increased 150,000 in June, which is a little lower than consensus at 175,000 , but significantly higher than the May figure of 38,000. Hence, we expect jobs growth in June has rebounded from the low level in May. We see the May jobs report more as a 'one off' rather than a new normal, although it magnifies the signal that job growth has indeed slowed lately. Leading indicators point to slower, but solid job growth. The Markit PMI employment index still points to modest job growth and initial claims figures have averaged lower in June than in May, indicating that job growth has rebounded in June.
We expect average hourly earnings increased 0.2 % m/m in June in line with the recent trend implying an annual growth rate of 2.7 %, the highest since the crisis. Average hourly earnings fluctuate a lot but in general we have seen a pickup in wage growth since the beginning of 2015, as the labour market has continued to tighten. The unemployment rate declined to 4.7% in May from 5.0 % in April, due to the falling participation rate. We think the large fall in the unemployment rate to 4.7% in May will be reversed a little, to 4.8 % in June.
We estimate employment growth continued to be driven by the service sector in June, with jobs growth of 140,000. On the data front we saw the PMI service index continue at a low level in June, while consumer confidence showed strength, with a sharp increase in the Conference Board index and Michigan figures continuing at high levels. The latest 'hard data' from May suggests the domestic part of the US economy (mainly services) continues to be strong. We think the service sector will continue to grow at a solid pace over the coming months with employment growth to continuing at solid levels. We estimate manufacturing employment decreased marginally by 10,000 in June, as we still see some headwinds for the manufacturing sector with slow growth in China, a strong dollar and low oil investments. On the upside we saw the ISM manufacturing employment index for June increase to 50.4 last week suggesting a stabilisation in manufacturing employment. We estimate construction employment increased 10,000 in June, as we see some possible correction from the last two months with declining construction employment.
In the US the focus in the coming months is on how the economy is affected by the UK 'leave' vote. We expect the US economy to be affected negatively, but the magnitude and duration of the negative shock is unknown and just what we need find out over the next 3-6 months. Hence, all data releases referring to the period before the UK referendum will not be as important as they would otherwise have been. Our main scenario is that the Fed will stay onhold for the next 12 months, with the first hike in June 2017. This will give them time to see the effects on the US economy of the UK 'leave' vote. The effects on the US economy will mainly be lower business investments and lower export growth, as we think private consumption will be more or less unaffected, see also Research - Global growth revised down following Brexit, 28 June 2016 . This will affect employment in manufacturing and construction negatively, but have a limited effect on service employment. We expect job growth to slow in H2 16, as we have a significantly tighter labour market now than one year ago (see spider chart next page) and also should see some negative Brexit effects, particularly on manufacturing employment.
To read the entire report Please click on the pdf File Below