US NFP: June data supports Fed’s policy - Wells Fargo

According to analysts from Wells Fargo, today’s NFP report indicates continued economic growth ahead and a basis for the Federal Reserve to continue its current policy path. They noted that structural unemployment issues remain.

Key Quotes: 

“Nonfarm payrolls rose a strong 222,000 in June, with the three month average at 194,000 jobs. Monthly average job gains this year continue the moderating trend started in 2014 and are consistent with a tighter labor market and rising wages/salaries.”

“Job gains, on average, continue to outpace the growth in the labor force, thereby putting downward pressure on the unemployment rate and modest upward pressure on wages.”

“Average hourly earnings rose 0.2 percent in June, putting the year-ago pace of wage growth at 2.5 percent. Despite continued steady job growth in 2017, earnings have yet to break out of this mid-two percent pace. The softer inflation readings and weak productivity numbers have limited the gains in nominal wage growth. On balance, average hourly and weekly earnings continue to improve and, along with more jobs, support the case for household income gains.”

“Long-term unemployment remains higher than levels of the past 30 plus years, signaling a structural shift in the labor market. Recent articles on the opioid epidemic and the shift in behavior of young men towards playing videos games at home rather than work suggest a more structural problem of worker displacement than can be dealt with by monetary policy alone. The net result is a continued lower than expected labor force participation rate, slower than expected economic growth and a gradual rise in wages as employers chase increasingly rare skilled workers.”