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The June NFP report was released yesterday and the Greenback tossed and turned before ultimately climbing higher on most pairs. What’s up with that? Well, time to find out!

Overlay of USD Pairs: 15-Minute Chart
Overlay of USD Pairs: 15-Minute Chart

Upside surprise for payrolls

  • June non-farm payrolls: 222K vs. 175K to 177K expected
  • May non-farm payrolls: upgraded from 138K to 152K (+14K)
  • April non-farm payrolls: upgraded from 174K to 207K (+33K)

I concluded in my Event Preview for the June NFP Report that the available economic reports were painting a mixed picture, but that they were pointing to the likelihood that job creation slowed in June overall, which was contrary to the consensus that job creation accelerated.

However, I also noted that the probability of getting a surprise reading appeared to be skewed more towards an upside surprise, based on the historical tendencies and the recent string of better-than-expected readings.

And, well, the historical tendency held and those leading indicators that pointed to a slowdown were apparently wrong since non-farm payrolls increased by 222K in June, soundly beating the consensus that non-farm jobs increase by 175K to 177K.

Even better, the reading for May was upgraded from 138K to 152K while the reading for April was upgraded from 174K to 207K. This means that non-farm jobs increased by 47K more than originally estimated, which is great.

Okay, let’s move on to the usual breakdown.

As you can see below, jobs growth in the service sector accelerated in June and it was broad-based to boot.

This means that both the ADP report and ISM’s non-manufacturing PMI report both missed on this one since they both pointed to a slowdown in service sector jobs growth.  But we saw that Markit’s services PMI report got it right as they said the “pace of job creation [in June] was the quickest since February.”

As for the manufacturing sector, it only contributed a net increase of 1.3K jobs because the 9.3K increase in durable goods manufacturing was almost offset by the loss of 8.0K jobs in the non-durable goods manufacturing industry. But it’s better than the net loss of 2.0K manufacturing jobs back in May, so it’s a positive sign for U.S. employment trends.

Moving on to the other major sectors, jobs growth in the construction industry accelerated, which is a good sign for the U.S. economy. Although it also looks like jobs growth in June got an extra boost from the 35K increase in government jobs.

Jobless rate climbed but…

  • Jobless rate: 4.4% vs. steady at 4.3% expected
  • Labor force participation rate: 62.8% vs 62.7% previous

The jobless rate climbed from 4.3% to 4.4%, ending four consecutive months of declines and missing expectations that it would hold steady at 4.3%.

This apparent deterioration in the jobless rate isn’t really that bad, however, since the labor force swelled by 361K to 160,145K, thanks to the participation rate rising from 62.7% to 62.8%.

This is the first rise after two straight months of declines and likely means that economic conditions improved enough to entice more Americans to join or rejoin the labor force.

Despite the strong jobs growth in June, however, the number of unemployed people rose by 116K to 6,977K, which means that the U.S. economy wasn’t able to fully absorb the influx of 361K new or returning workers. And that’s why the jobless rate ticked higher.

Wage growth disappoints

  • June average hourly earnings m/m: 0.2% vs. 0.3% expected
  • May average hourly earnings m/m: downgraded from 0.2% to 0.1%
  • June average hourly earnings y/y: 2.5% (no consensus)
  • May average hourly earnings y/y: downgraded from 2.5% to 2.4%

Wage growth was the only real disappointment since average hourly earnings rose by 0.2% month-on-month to $26.25, which is slower than the expected 0.3% increase.

However, the 0.2% reading is actually rounded up. A more precise reading yields 0.15%, which is half the expected rise of 0.3%. As such, wage growth was a real disappoitment.

The disappointment doesn’t stop there, though, since the reading for May was also downgraded from 0.2% (0.15% to be more precise) to 0.1% (0.11% to be more precise).

Moreover, the year-on-year reading for May was downgraded from 2.5% to 2.4% (2.42% to be more precise), which is the slowest annual rise in wages since November 2014.

But on a slightly more upbeat note, average hourly earnings did increase by 2.5% year-on-year (2.46% to be more precise) in June.

In addition, a closer look at the details for monthly wage growth shows that only the non-durable goods manufacturing sector, professional and business services, and other services printed a fall in wage growth. The rest, meanwhile, reported an increase in wages.

Final Thoughts

Overall, the June NFP report was pretty good. However, wage growth disappointed again. As such, Greenback bulls tried their best buy up the Greenback while Greeenback bears, who were more focused on wage growth, tried to push the Greenback lower, which is why the Greenback tossed and turned initially.

However, the NFP report apparently caused expectations for one more hike this year to rise from to 57.2% to 59.1%, according to the CME Group’s FedWatch Tool.

FedWatch Tool
Source: CME Group’s FedWatch Tool

And that’s very likely the reason why Greenback bulls slightly won out in the end. However, the Greenback obviously had no luck against the Loonie because Canada’s June Jobs Report came in better-than-expected, although that’s not really that surprising if you were also able to read up on my Event Preview for Canada’s June Jobs Report.