9 May 2016
US: Softer employment growth but firmer earnings growth - MUFG
Lee Hardman, Currency Analyst at MUFG, suggests that the much anticipated release of the latest non-farm employment report has had little impact on the currency market likely reflecting the mixed signals from the report.
Key Quotes
“The report revealed that employment growth has softened although still remains solid. Employment growth slowed to 160k in April which was a little weaker than market expectations heading into the report which had already adjusted lower following the earlier release of the softer ADP survey. There appears to have been some payback seasonal weakness in April following the mild weather in Q1. It highlights that the underlying trend of employment growth still remains solid especially in comparison to the more marked slowdown in economic activity.
The more positive aspects of the report were the upward surprise to earnings growth which accelerated to an annual rate of 2.5% in April. It adds to building evidence that tightness in the labour market is encouraging higher wages. The report also revealed a healthy jump in aggregate hours worked which have already increased by an annualized rate of 1.5% so far in Q2 compared to the average in Q1. If there are further modest gains in the following months and a rebound in productivity it is likely to be consistent with a solid rebound in economic activity in Q2.
Overall, the report is unlikely to materially change the outlook for Fed policy. The report is not strong enough to prompt the market to increase expectations for the Fed to raise rates again at their next meeting in June but appears consistent with the next rate hike being delivered in the third quarter.
For the US dollar it was not weak enough to pull the rug from under its recent rebound nor strong enough to encourage further gains in the near-term. Further US dollar strength will require evidence that the US economy is regaining upward momentum. The release of the latest US retail sales report for April will be the key focus in the week ahead alongside Fed speak.
Fed Vice Chair Dudley has been the first to comment following the release of the NFP report stating that it was “a touch softer, maybe, than what people were expecting, but I wouldn’t put a lot of weight on it in terms of how it would affect my economic outlook”. In his view it remains a “reasonable expectation” that the Fed would increase rates two times this year.”
Key Quotes
“The report revealed that employment growth has softened although still remains solid. Employment growth slowed to 160k in April which was a little weaker than market expectations heading into the report which had already adjusted lower following the earlier release of the softer ADP survey. There appears to have been some payback seasonal weakness in April following the mild weather in Q1. It highlights that the underlying trend of employment growth still remains solid especially in comparison to the more marked slowdown in economic activity.
The more positive aspects of the report were the upward surprise to earnings growth which accelerated to an annual rate of 2.5% in April. It adds to building evidence that tightness in the labour market is encouraging higher wages. The report also revealed a healthy jump in aggregate hours worked which have already increased by an annualized rate of 1.5% so far in Q2 compared to the average in Q1. If there are further modest gains in the following months and a rebound in productivity it is likely to be consistent with a solid rebound in economic activity in Q2.
Overall, the report is unlikely to materially change the outlook for Fed policy. The report is not strong enough to prompt the market to increase expectations for the Fed to raise rates again at their next meeting in June but appears consistent with the next rate hike being delivered in the third quarter.
For the US dollar it was not weak enough to pull the rug from under its recent rebound nor strong enough to encourage further gains in the near-term. Further US dollar strength will require evidence that the US economy is regaining upward momentum. The release of the latest US retail sales report for April will be the key focus in the week ahead alongside Fed speak.
Fed Vice Chair Dudley has been the first to comment following the release of the NFP report stating that it was “a touch softer, maybe, than what people were expecting, but I wouldn’t put a lot of weight on it in terms of how it would affect my economic outlook”. In his view it remains a “reasonable expectation” that the Fed would increase rates two times this year.”