With the initial Wall Street reactions to today’s payrolls report coming in, we present readers with two different takes on today’s jobs number.
The first, and far more bullish one, from Goldman’s Jan Hatzius, notes that “the composition of the report was solid with a further drop in the unemployment rate to 4.4%, matching the lows achieved in the last cycle and three tenths below Fed officials’ estimate of its structural rate.” As a result Goldman has increased its June 2017 rate hike probability from 70% to 90%, to wit:
The first is from Goldman, Nonfarm payroll employment increased by 211k in April, moderately above consensus forecasts. The composition of the report was solid with a further drop in the unemployment rate to 4.4%, matching the lows achieved in the last cycle and three tenths below Fed officials’ estimate of its structural rate (4.7%). Average hourly earnings were in line with expectations, but negative revisions to prior months reduced the year-over year rate to 2.5%. We increased our subjective probability that the next hike occurs at the June 2017 meeting from 70% to 90%.
A less upbeat reaction came from Citi’s Todd Elmer who writes that “the strongest signal is for a bit of drift lower in USD” as the “the report is mixed. Headline employment beat, there was a downward revision, unemployment beat expectations, the participation rate declines and average hourly earnings were a bit downbeat, missing on a year on year basis and seeing a downward revision.”
Elmer also argues for a lower dollar because “jobs have been so strong for so long that investors are more concerned with whether there is pass through to wages in terms of implications for Fed policy. Speaking to this release, there was likely some lean in favor of a stronger wages outcome following the recent surprise on ECI, which may exacerbate market disappointment.” That said, For now the dollar is trying to find direction, declining against the EUR and rising against the Yen. Citi’s full note below:
Ultimately, the payrolls should not be a major signal to the market and the proximity of the speech by Fed Vice-Chairman Fischer may limit market response. That said, we believe the strongest signal is for a bit of drift lower in USD. The report is mixed. Headline employment beat, there was a downward revision, unemployment beat expectations, the participation rate declines and average hourly earnings were a bit downbeat, missing on a year on year basis and seeing a downward revision. That is a lot for the market to digest, but the recent pattern is that average hourly earnings has mattered the most. This points slightly lower for USD and is consistent with the knee-jerk response across the market.
This patterns makes some sense to us since jobs have been so strong for so long that investors are more concerned with whether there is pass through to wages in terms of implications for Fed policy. Speaking to this release, there was likely some lean in favor of a stronger wages outcome following the recent surprise on ECI, which may exacerbate market disappointment.
Below, several other banks share their kneejerk takes, courtesy of Bloomberg:
Deutsche Bank (Alan Ruskin, note)
- Data shows “economy is at or very close to full employment”
- The 2-, 3- and 4-month average of job growth is 136k, 164k and 174k
- Downward revision to average hourly earnings “will ease the Fed’s mind that they are falling behind the inflation curve”
- “No reason for the Fed not to march the funds rate up”
- Firm still forecasts 25bp hikes in June and September
Saxo Bank (John Hardy, interview)
- “It’s not particularly USD-positive due to the average hourly earnings fizzle”
- “I’m not sure the market will want to do much with this data ahead of French election weekend”
- “There are very few takeaways here. Most positive is the household survey showing strong gains and unemployment rate continuing to crash lower. Least impressive is the increasingly influential average hourly earnings — disappointing that the year-on-year is still so low”
FTN Financial (Jim Vogel, note)
- Wage data in jobs report raises “no alarms”
- Overall labor figures for April ’’on target’’
- Friday’s report “makes Fed speeches today just a bit more important”
BMO (Ian Lyngen, note)
- Average hourly earnings, along with recent wage inflation reports, “counters any urgency the FOMC might have to tighten based on wage/pricing concerns”
TD Securities (Michael Hanson, Brittany Baumann, note)
- “Drop in the unemployment and underemployment rates will get the attention of Fed officials”
- Wage growth was a miss yet “real wage gains remains positive”
- “The case for a June hike remains strong on this report”
- Possible that “Fed officials sound a bit more hawkish with an unemployment rate now at their expected low for the end of this year”
ING Bank NV (James Knightley, note)
- Data support Fed’s “policy of gradually raising rates”; jobs added and fall in unemployment rate were all “good news”
- “The one disappointment was the fact that annual wage growth slipped”
- Speed of wage growth means “no real pressure on Fed to accelerate the pace of interest rate hikes”
- Rebound in employment bolsters Fed view that Q1 slowdown was “transitory”
CIBC (Royce Mendes, in note)
- Turnaround in data was “necessary to see the Fed go in June, and today’s payroll report got the ball rolling”
- Headline gain in payrolls, decrease in unemployment rate is “a step in the right direction”
- Only disappointment was annual rate of wage growth
Cambridge Global Payments (Karl Schamotta, note)
- Data suggests Fed’s “confidence in the US economy is justified”
- Job market strength puts Fed “on course to tighten policy through the months ahead”
- More Fed normalization will ‘lift real rates and support the dollar’’
- A Fed “June rate hike look increasingly likely”
Pantheon Macroeconomics (Ian Shepherdson, note)
- Expect payroll growth to average 200k or so over next few months, putting further pressure on unemployment rate
- “June hike is more or less done, but we think markets hugely underestimate the risk for Sep, when we expect the Fed to hike again”
Bloomberg Intelligence (Carl Riccadonna, Yelena Shulyatyeva, Richard Yamarone)
- Most important takeaway from April report is that signal of March hiring lull was probably “a one-off anomaly”
- Continued decline in unemployment and backsliding of wage pressure is “compelling sign” that labor-market slack is being reduced, yet not causing acute wage inflation
Morgan Stanley (Ted Wieseman, note)
- April NFP is “very strong report”
- “There wasn’t much doubt in our view before this report about a Fed rate hike in June, and there’s less now”
- Upside risks to future wage growth were raised by another new low in unemployment rate
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