Friday, July 4, 2014

Solid US jobs growth

We saw another good piece of news out of the US today supporting the case for a solid rebound in growth following the disappointment of the first quarter.

Non-farm payrolls expanded +288k in June with broad-based gains concentrated in business services, manufacturing and construction.  The average work week was unchanged over the month but with more people in work aggregate hours worked are rising at around a 4.5% annual pace (3-month annualised), supporting the story of stronger growth ahead.

Employment growth was also strong in the household survey which when combined with an unchanged participation rate led to a decline in the unemployment rate from 6.3% in May to 6.1% in June.

Wages are quickly becoming the most keenly watched data as the market looks for any hints of when the Fed may start to raise interest rates.  There was nothing in this data to get excited about.  The 0.25% monthly gain in average hourly earnings was a touch higher than the recent average but the annual rate remains around 2%.

Our US growth forecasts for the remainder of this year are dependent on strong consumer spending.  While wages remain subdued, that combined with increasingly solid employment gains still leads to a strong increase in aggregate consumer income.  That in turn bodes well for GDP growth in the period ahead.