NEW YORK (Reuters) - U.S. job growth increased more than expected in June and the unemployment rate remained near pre-pandemic lows, giving the Federal Reserve ammunition to deliver another 75-basis-point interest rate increase later this month.
Nonfarm payrolls increased by 372,000, the Labor Department's employment report showed on Friday. May was revised slightly down to show payrolls rising by 384,000 instead of the previously reported 390,000. Economists polled by Reuters had forecast 268,000 jobs added last month.
Employers continued to raise wages at a steady clip last month. Average hourly earnings increased 0.3% in June after gaining 0.4% in May. That lowered the year-on-year increase to 5.1% from 5.3% in May.
MARKET REACTION:
STOCKS: S&P e-mini futures extended losses to 0.7%, pointing to a weak open on Wall Street
BONDS: The yield on the benchmark 10-year note rose to 3.0747%; Two-year Treasury yields rose to 3.1171%
FOREX: The dollar index extended to a 0.34% gain
COMMENTS:
PHIL ORLANDO, CHIEF EQUITY MARKET STRATEGIST, FEDERATED HERMES, NEW YORK
“We don't know if inflation peaked, we don't know if Fed hawkishness has peaked. Earnings are going to be terrible. Every company is going to be singing from the same hymnal. The economy has started to slow, profit margins have narrowed based upon higher labor costs, higher commodity costs, higher transportation costs. Productivity across the entire economy has collapsed. As a result, we've just reported a bad number and we need to guide down for the balance of this year due to poor visibility. The combination of uncertainty about inflation, Fed policy and earnings trends suggest that stocks should go lower."
"This is the fourth dead cat bounce we've seen over the last four or five months in stocks as investors have been hoping that we would get peak inflation, peak Fed hawkishness, etc. We're not there yet. Which means the trend is lower over the next couple of months."
ALAN LANCZ, PRESIDENT, ALAN B. LANCZ & ASSOCIATES, TOLEDO, OHIO
"This report shows... the economic numbers might be stronger than the economists and the markets thought. So that increases the likelihood of a soft landing, which I think as you can tell by the first half of the year, the markets thought was unlikely and a challenging thing. So it increases the likelihood. Is it still likely? No."
RICHARD FLYNN, MANAGING DIRECTOR, CHARLES SCHWAB, UK
“Today’s strong jobs report contrasts with other recent economic announcements. The US economy and the stock market have both struggled in the first half of 2022, in the face of risks that include a multi-decade high in inflation, aggressive monetary policy tightening, and the effects of Russia’s invasion of Ukraine. For now, the jobs market appears unimpacted by these risks. However, jobs reports are lagging economic indicators that are often strong entering a downturn. Despite today’s good news, stocks are likely to continue to feel the weight of monetary tightening, shrinking liquidity, and slower economic growth.”
ERIC MERLIS, MANAGING DIRECTOR OF GLOBAL MARKETS, CITIZENS, BOSTON
“It’s a great number across the board. We’ve been hearing 'recession, recession, recession,' but as long as the employment market is still strong, and I don’t think you can make the case based off the last two months that it isn’t … then the severity and immediacy of a downturn seems to be put off by at least a quarter or so.”
“A 75 bps (Fed hike) got immediately priced in – it’s almost a done deal. Don’t think CPI data will change the trajectory of the July meeting, but it could change the September meeting. The market’s responded accordingly.”
“One thing I’m focusing on is the participation rate and when, or if, it gets back to pre-pandemic levels. But I think that very much depends on the age group you’re looking at.”
SAMEER SAMANA, SENIOR GLOBAL MARKET STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE, ST. LOUIS
"It shows us still a solid level of job growth but the eyes are drawn quickly to the wage numbers ... given the sensitivity around inflation, the fact that it came in higher than expected and last month was revised up, that combination probably means that the Fed has all the pieces in place to raise rates by 75 basis points again in two weeks unless there's something that shows us inflation is cooling."
"These wage and payrolls numbers continue to squarely put the pressure on the Fed to continue to move rates to a more restrictive level."
"We're in the camp that inflation will be stickier and take longer to come down. We think that's the part that markets and investors under-appreciating."
BRIAN JACOBSEN, SENIOR INVESTMENT STRATEGIST, ALLSPRING GLOBAL INVESTMENTS, MENOMONEE FALLS, WISCONSIN
“The Fed probably feels vindicated in hiking 75 basis points. Wages aren’t accelerating, but based on the volume of job openings and payroll gains, the Fed probably thinks the labor market is still too hot to handle.”
SHAWN CRUZ, HEAD TRADING STRATEGIST, TD AMERITRADE, CHICAGO
“If you look at the immediate reaction, yields moved higher and equity futures dropped off a little bit, that sort of implies the Fed is going to maintain its hawkish tone. There was a little bit of progress made in that you did see wage growth come in a little bit lower, that is one of the things the Fed is trying to push down because wage growth, as hot as it is, is seen as the tailwind for inflation. The big surprise here was the labor force participation rate actually ticked down to 62.2% and a lot of economists were expecting that to move higher.”
“Right now this doesn’t indicate we are seeing that slowing in the labor market, the labor market starting to loosen up at all which means they still have more work to do. If you look at the second half of June, things turned dramatically in the second half of June in terms of sentiment, the incoming data coming in, and that will not get picked up in this employment report, that is a huge caveat. If you look at what some of the markets did, we saw it in our own client trading activity, was just this massive turn in sentiment with a lot of the economic data that was coming out. That all happened after this jobs report data was collected, that is one thing to keep in mind. Because some of those PMI numbers you got out, especially the ISM services, the employment components of those actually moved lower and that is going to capture a more complete picture of what was going on in June than just this jobs report. So that is one huge asterisk to some of what we are seeing in this report.”
“The report in and of itself, if this is just what the Fed is looking at, this would keep them hawkish, it certainly wouldn’t indicate they are making headway on their goal of reigning in inflation and cooling off the economy, you wouldn’t have a jobs report that is coming in ahead of expectations. You could also see this beat as a little bit of a wash because the previous months were actually dialed down.”
TOM PLUMB, PORTFOLIO MANAGER, PLUMB BALANCED FUND, MILWAUKEE, WI
"Certainly it solidifies the view that there's going to be a 75-basis point increase in the next two weeks when they meet, but beyond that, it probably doesn't have much implications because we're going have more data points before that."
"We are still in the case where bad news is good news and good news is bad news. So that's going to be the case until there's some perception and sentiment that the Federal Reserve Bank has accomplished or is accomplishing their goal of moderating the growth of the economy and breaking the back of the inflation cycle that started last year."
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“The (nonfarm payrolls) number was than I was looking for. The participation rate came down, but good news is wage (growth) stayed at 0.3%.”
“In general, it shows that the labor market is still pretty tight but there are signs that it’s beginning to loosen and there’s more evidence that wages have peaked. That’s good news for the Fed.”
“The jump in manufacturing payrolls could be due to a seasonal factor. “
“It would expect the Fed to raise 75 bps this month, and once we see what CPI and PPI (data) are, then September is up for grabs; whether the Fed goes for a 50 basis points interest rate hike, or even takes a pause.”
(Compliled by the global Finance & Markets Breaking News team)