June NFP: As Good As It Gets!

Last Friday was a big one for traders. Nope, I ain’t talking about our waistlines following all the beers we chugged during the Fourth of July celebrations!

If you remember, the Fed has previously hinted that it could take its first step away from aggressive monetary policy sometime this year. Policymakers made it clear that they wouldn’t just jump in on it though. They said that the decision would depend on the economic reports we would get from the U.S. This explains why the NFP release last Friday had everyone on their toes!

But Fed officials can now rest easy. Data revealed that the labor market seems to be doing pretty well and the central bank is on the right track to reduce its asset purchases.

The headline jobs figure printed at 195,000, well above the 163,000 consensus! To top it off like the icing on your momma’s Independence Day cake, the employment reading for May was upwardly revised from 175,000 to 195,000. The figure for June and the revision for May boosted the 6-month job growth average up to 202,000 when it only previously averaged 196,000 monthly.

The unemployment rate held steady around at 7.6%. Analysts had predicted it to come in a littler lower at 7.5% but the increase in the number of people who joined the workforce kept the rate from improving.

Meanwhile, hourly earnings rose by 0.4% to $24.01, after it was only anticipated to post a 0.2% uptick.

Digging further, you’ll notice that a majority of the job gains actually came from the private sector. Companies hired 202,000 more employees last month, which is a nice follow up to the 207,000 figure in May. Apparently, this can be mostly attributed to the uptick in the leisure and hospitality industry, which accounted for 75,000 of the total figure. Meanwhile, manufacturing growth remained steady despite weakness in foreign demand and federal budget cuts.

It wasn’t all rosy though. Underemployment – which tracks down the number of people who are already working but feel that they are capable of doing more – rose to its highest level in four months, rising from 13.8% to 14.3%. In terms of raw numbers, this translates to an increase of 300,000 underemployed workers! What this tells us is that many people are not finding the work that they want and are merely settling for whatever is being offered.

Despite the rise in underemployment though, many analysts believe that it may only be a matter of time until the Fed begins to taper monthly asset purchases.

Word on the street is that this will likely happen in September. This should give the Fed enough time to gather more evidence to decide whether or not data from April to June truly signifies progress or it could be nothing more than just a blip.

Looking at the charts it seems that the prospect of tapering is being priced in as well.

USDX Chart

USDX is now trading at its previous highs on the daily chart. The question is, will expectations of tapering by September cause traders to position themselves and keep this rally going?