Steady Improvement

The June labour market report is a broadly positive one, with private non-farm payrolls up by more than 200,000 for the second month in a row. As labour market conditions improved, previously discouraged workers are searching again, limiting the pace of decline of the unemployment rate, and postponing the time when QE3 will be ended

In June, non-farm payrolls were up by 195,000, while data for May and April were revised upwards. Over the last three months, the US economy added 589,000 new positions, after 622,000 in Q1. This comes despite continued decline in government payrolls, which lost 7,000 in June, after a cumulative 16,000 between July and May.

Private non-farm employment is on a solid growth path of 199,000 a month (smoothed over three months), especially thanks to the service-producing industries that added 194,000 new positions in June, after an average 206,000 in April and May and of 169,000 in Q1.

The positive trend in the labour market conditions is bringing back some previously discouraged workers into the labour force. The labour participation ratio thus increased for the second month in a row, to a current 63.5%. This positive development has adverse effects, as it limits the pace of decline in the unemployment rate that stood steady at 7.6% in June. However, as the Fed made it clear, this also postpones the moment when it will end QE3, as it is likely to happen when the unemployment rate reaches 7%.

As for the household survey details, some other positives are to be found, like the declining median duration of unemployment, which is now 16.3 weeks, down from 18.1 in March. The proportion of persons being unemployed because they quit their job is also increasing, a sign of optimism about their chances to find rapidly a new position.

The growth rate in hourly earnings remains a disappointment, as it stubbornly does not accelerate from the 2% y/y it has been stuck to over the last couple of years. As long as the unemployment rate remains markedly above its equilibrium level (estimated at 5.2% by the Fed), this situation is unlikely to change. Thanks to growing employment, total earnings are on a more positive path, ensuring private consumption will keep holding up.

BY Alexandra ESTIOT

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