Moments ago it was Goldman, and now here is Bank of America, which until today had expected at least two hikes in 2016 but following “a string of disappointing data”, it too has thrown in the towel.
From the otherwise very cheerful Ethan Harris, so cheerful in fact that he forecasts no recession over the next decade.
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Fed call: it is a story for September
Following a string of disappointing data, the April jobs report has pushed us to change our Fed call. We are now looking for the Fed to hike once this year – in September – versus our prior forecast of a hike in June and December. Why the change?
- There has been a loss of momentum in the US data, even controlling for distortions to 1Q GDP.
- We believe the Fed is engaging in “opportunistic reflation”, targeting inflation above 2%.
- Although financial conditions have improved, there are still concerns about an uncertainty shock related to the markets, UK referendum and US elections.
We still believe the Fed is engaged in a normalization process and look for the Fed to hike again in March next year after moving rates higher in September. But the Fed has emphasized the asymmetry of policy, which means this hiking cycle will be even slower than we had initially believed.
Focusing on today’s jobs report, nonfarm payrolls of 160,000 and net revisions of -19,000, showed a slower trend for job growth. However, the 3-month trend is still a healthy 200,000, and the 6-month trend is a bit higher at 220,000. Moreover, there is some room for optimism: April nonfarm payrolls have shown a tendency to be revised upwards in subsequent months by an average of 26,500 (see Nonfarm payrolls myths and realities for more information).
The unemployment rate held steady at 5.0% amid a sharp 316,000 decline in household employment, but a sharp contraction in the labor force-the participation rate ended its 6-month uptrend and pulled back to 62.8% from 63.0%. A bright spot in an otherwise rainy April jobs report was wages: average hourly earnings climbed 0.3% mom, which pushed up the yoy pace by 0.2pp to 2.5% yoy. While still a modest pace of wage growth, it is up from the 2% trend that we’ve seen for most of the recovery, suggesting narrowing slack in the labor market. Additionally, the average workweek ticked back up to 34.5 from 34.4.
To be clear, the jobs report was not the sole factor for the revision to our call for the Fed. It was simply the last of a string of softer indicators that has prompted us to change our forecast. But remember, the economy is still expanding, inflation is still accelerating and the Fed is still normalizing.
via http://ift.tt/1YcVWZJ Tyler Durden