Nonfarm Payrolls Rose 213,000 in June

 
Implications:  Another strong report on the US labor market.  Nonfarm payrolls rose 213,000 in June, beating the consensus expected 195,000.  Although some may complain about the rise in the unemployment rate back up to 4.0%, the increase wasn't due to a lack of jobs; civilian employment, an alternative measure of jobs that includes small business start-ups, rose 102,000 in June, while the labor force increased 601,000 (people who are either working or looking for work).  As a result of more people looking for work, the participation rate moved up to 62.9% in June, near the higher end of its past 4+ year range (62.3% and 63.1%).  This jump in the labor force is a positive sign, not negative, and is highly unlikely to cause the Federal Reserve to shy away from rate hikes.  The Fed still sees 4.5% as the long-term average, while aging baby boomers retire.  Payrolls are up 198,000 per month in the past year, and the economy is still showing the momentum that should take the jobless rate lower in the next couple of years.  Although average hourly earnings grew only 0.2% in June versus a consensus expected 0.3%, workers' paychecks are expanding.  In the past year, average hourly earnings are up 2.7%.  Mix that with a 2.1% increase in the number of hours worked and total earnings are up 4.9% in the past year, more than enough to keep pushing consumers' purchasing power higher.  Moreover, this gain doesn't include extra earnings from irregular bonuses and commissions, like those paid out after the tax cut was passed.  Put it all together and we think the Fed will raise rates twice more this year (a total of 50 basis points) and four more times in 2019 (another 100 basis points).  Meanwhile, the futures market in federal funds puts the odds of such rate hikes (or more) at only 2.9%.  As a result, look for higher interest rates across the yield curve in the next eighteen months. 

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Posted on Friday, July 6, 2018 @ 9:59 AM

These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.