US: Robust job creation still without much pressure on wage growth
The June employment report underpins the Fed’s puzzle. While job creation remains healthy and the unemployment rate suggests that full employment has been reached, wage growth has failed to pick up.
Friday’s US employment report showed a return to strong job creation in June after a more moderate number in May. 222,000 nonfarm payrolls were created, as opposed to an upward-revised 152,000 the month before. That brings average job creation in Q2 up to 194,000, pointing to continued strong hiring. The unemployment rate edged up to 4.4 per cent, likely only because of a small increase in the participation rate. Average hourly earnings, on the other hand, remained stuck at 2.5 per cent and have failed to rise higher in the past few months. The higher participation rate and unchanged wage growth could in part also be due to a seasonal factor with students having started to look for summer jobs a bit later this year. All in all, we believe that even though there may be some hidden slack left, the improving labour market situation will support private consumption and have a mildly reflationary effect. This will allow the Fed to continue to normalise its loose monetary policy stance.
The June employment report underpins the Fed’s puzzle. While job creation remains healthy and the unemployment rate suggests that full employment has been reached, wage growth has failed to pick up. All in all, Julius Baer believe that the tightening of the labour market within a robust economic backdrop will foster a mild reflation and allow a gradual firming of US monetary policy.