US non-farm payrolls came in at 206k (consensus: +190k) in June, versus a revised 218k in May (previously: 272k) and a 10-year pandemic-adjusted average of c.180k.
The unemployment rate was 4.1% (consensus: 4.0%) versus 4.0% in May. Average hourly earnings meanwhile rose 0.3% in June (consensus: +0.3%), against a 0.4% gain in May.
Daniel Casali, Chief Investment Strategist at wealth management firm Evelyn Partners, says:
‘The key takeaway is that resilient US labour demand continues to support economic growth. The flipside is that persistently solid-looking payrolls might lower the probability of material Federal Reserve interest rate cuts in 2024 – though this data in itself will not stop the Fed from loosening.
‘In his last press conference after the FOMC, Fed Chair Powell stated that the central bank would act before there is a collapse in employment.
‘Other recent data also point to a healthy labour market. For instance, the latest May job openings (from the JOLTS survey) reported earlier this week came in at 8.1m and are still significantly up from a pre-covid level of around 7.0m at the end of 2019.
‘Aside from new jobs being created in the economy, workers have also benefited from rising average hourly earnings wage rates. Taken together, nominal labour income (defined as the product of employment, wages rates and hours worked) expanded by 5.1% from a year ago. This shows workers are earning more than the current CPI inflation rate of around 3% to drive consumption growth.
‘The risk for markets is a sharp rise in the unemployment rate leads to a collapse in consumer and business confidence, which drives down economic growth. However, that risk appears to be contained. As a lead indicator, rising US non-financial corporate profit margins points to a lower unemployment rate in the quarters ahead. Essentially, firms have been adept at lifting profit margins. For example, some companies have turned to so-called “shrinkflation”, where the package size for goods is reduced, but prices charged stay the same to boost profitability.
‘Moreover, with the advance of “Big Data”, often collected covertly via apps, corporate pricing power has been supercharged. Using technological innovation (e.g. cloud computing, algorithms and artificial intelligence), firms have been able to collect personal information to estimate when a consumer may be looking to buy something and at what price they would be willing to pay. For instance, travel agents can utilise purchase history to set optimal hotel pricing for individual customers at the high end.
‘Employment is growing sufficiently to support consumer demand and economic growth, while the risk of a sharp uptick in unemployment seems contained. This provides a conducive backdrop for equities to rally.’
| Adrian Lowery Senior Media Relations Manager Evelyn Partners T: 44 7741 684187 | M: 07741 684187 45 Gresham Street , London , EC2V 7BG Follow us on social media |
