Jobs Report Beats Across The Board, Unemployment Rate Falls, Just As Economist Donald Trump Teased

Ok, here comes payrolls, and at least one noted economist is excited:

Looking forward to seeing the employment numbers at 8:30 this morning.

— Donald J. Trump (@realDonaldTrump) June 1, 2018

That raises obvious questions about whether Trump is now teasing information he already has.

This print is more interesting than it might have been otherwise in the wake of this week’s political turmoil in Europe which, on Tuesday, helped catalyze a safe haven bid that sent 10Y U.S. yields tumbling 17bps, the most since Brexit and prompted a recalibration of Fed expectations. We’re a long (long) way from where we were two weeks ago, when 10Y yields hit their highest levels since 2011 following retail sales numbers:

The dollar, meanwhile, has trimmed gains logged earlier this week and appears to have reached some kind of pivot point where positioning is cleaner and folks are waiting on fresh catalysts and or directional drivers.

Today’s payrolls data also comes after the dovish May Fed minutes tipped a tolerance for inflation overshoot.

“We expect a 0.3% increase in average hourly earnings, which is one-tenth higher than consensus,” Bloomberg economists Carl Riccadonna and Niraj Shah predict. That would push the YoY rate to 2.7%. “Given the Fed’s sanguine assessment of the inflation outlook, policy makers will need to see average hourly earnings above 3% before they begin to express more hawkish concerns,” Riccadonna and Shah continue.

The April report was Goldilocks-ish, missing only modestly on the headline while betraying no signs of sharply accelerating wages. The unemployment rate of course breached 4%.

“For the May employment report, we look for a 200k increase in nonfarm employment [and] within this total, we look for government payrolls to rise 10k and expect another month of solid employment growth in the private sector (190k),” Barclays writes, before delivering their predictions for the unemployment rate and AHE as follows: “We expect the unemployment rate to decline 0.1pp, to 3.8%; average hourly earnings to rise 0.2% m/m (2.6% y/y); and average weekly hours to remain unchanged at 34.5 hours.”

“We look for nonfarm payrolls to increase by 220k in May after 164k increase in April [and] if realized, the trend in employment growth would remain elevated with the 6-month moving average little changed at 200k, well above breakeven levels,” BofAML says. They’re at 0.2% MoM for AHE.

And here’s Goldman:

We estimate that nonfarm payrolls increased 205k in May, 15k above consensus. While labor supply constraints often weigh on May job creation when the labor market is beyond full employment, we believe strong jobless claims data, rebounding business surveys, and a return to normal weather suggest a pickup in payroll growth.

We estimate a 0.2% month-over-month increase in average hourly earnings (and 2.6% year-on-year), reflecting unfavorable calendar effects associated with the relatively early survey week.

As far as Fed expectations, June still seems baked in (or at least it should be baked in) and but the medium to longer-term outlook got a bit of a jolt this week as EM tumult and the Italian turmoil reminded the committee that international risks have the potential to feed back into developed market assets. So barring a blowout AHE print, it seems unlikely that payrolls is going to cause a material repricing. Or maybe I’m a moron. Who knows.

So there you go. All you didn’t want to know. Now without further ado…

Estimates and priors

• Change in Nonfarm Payrolls, est. 190,000, prior 164,000
• Change in Private Payrolls, est. 190,000, prior 168,000
• Change in Manufact. Payrolls, est. 20,000, prior 24,000
• Unemployment Rate, est. 3.9%, prior 3.9%
• Underemployment Rate, prior 7.8%
• Average Hourly Earnings MoM, est. 0.2%, prior 0.1%
• Average Hourly Earnings YoY, est. 2.6%, prior 2.6%
• Average Weekly Hours All Employees, est. 34.5, prior 34.5
• Labor Force Participation Rate, prior 62.8%

Actual

• U.S. May Nonfarm Payrolls Rose 223k; Unemp. Rate at 3.8%
• Nonfarm payrolls, net revisions, 15k from prior two months
• Participation rate 62.7% vs prior 62.8%
• Avg. hourly earnings 0.3% m/m, est. 0.2%, prior 0.1%
  • Y/y 2.7%, prior 2.6% est. 2.6%
• Nonfarm private payrolls rose 218k vs prior 162k; est. 190k, range 145k-245k from 31 economists surveyed
• Manufacturing payrolls rose 18k after rising 25k in the prior month; economists estimated 20k, range 8k to 25k from 20 economists surveyed
• Unemployment rate 3.8% vs prior 3.9%; est. 3.9%, range 3.8%-4% from 75 economists surveyed
  • Unemployment rate low matches April 2000, which was lowest since Dec. 1969
• Underemployment rate 7.6% vs prior 7.8%
• Change in household employment 293k vs prior 3k