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Sigh of relief with June payrolls

11 July 2016
The US labour market bounced back with broad-based jobs growth in June, alleviating concerns of an economic slowdown in the United States. 
Non-farm payroll employment rose 287,000 in June following virtually no growth (a revised 11,000) in May. The three-month moving average gain came in at 147,000 for the period to June. We have been expecting a drop down to lower average monthly gain from the 200,000 pace of 2015 and early 2016  once the labour market got close to full employment.

Data in the establishment survey was a tad softer with a slower pace of employment gain and a tick higher in the unemployment rate from 4.7% in May to 4.9% in June. That was also the result of a rise in the participation rate. The participation rate appears to be stabilising which is a good sign given the strong trend decline since the end of the recession. Wage growth was only 0.1% in the month though the annual rate nudged higher to 2.6%.  
Overall this was a good result and will help reduce concern about the state of the US economy. We would have been surprised if payrolls had stayed weak given other labour market data has been relatively good and activity data has been indicative of an economy that is growing at an above trend rate in the second quarter of the year.  
That said, this result will have led to a sigh of relief at the US Federal Reserve where the Federal Open Market Committee (FOMC) is keen to push on with interest rate normalisation. The FOMC is unlikely to do anything in July given post-Brexit wobbles however a continued run of good data should see expectations of at least one rate hike this year continuing to build. Right now interest rate markets are pricing a 20% chance of one rate hike this year. We’d put that probability at 50%. 

This blog post has been prepared to provide general information and does not constitute 'financial advice' for the purposes of the Financial Advisors Act 2008 (Act). An individual investor should, before making any investment decisions, consider the information available in the relevant Product Disclosure Statement and seek professional advice. While every care has been taken in the preparation of this document, AMP Capital Investors (New Zealand) Limited and the AMP Group (together, 'AMP') make no guarantee that the information supplied is accurate, complete or timely and do not make any warranties or representations in respect of results gained from its use. The information is not intended to infer that current or past returns are indicative of future returns. The views expressed are those of the author and do not necessarily reflect those of AMP. These views are subject to change depending on market conditions and other factors.

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