Thursday, July 3, 2014

Our NFP guesstimate was off again ...

For the second month in a row, our NFP forecast was not accurate at all as BLS reported net change of +288K in NFP for June.  This easily beat the 211K consensus and blew away our mere 190K estimate.  Official unemployment rate declined 20bps to 6.1% while participation rate remained at 62.8%.  The U-6 unemployment rate declined to 12.1% from 12.2%.      

While most figures in the report were positive, we note the 275K increase in part-time jobs due to economic reasons (or basically involuntary part-time jobs) is concerning, especially after seeing a 196K decline in May.   

Another not-so-great-news was that average hourly wages went up by 6c from the prior month, which represents a mere 1.96% wage growth Y/Y.  Let's hope wage growth picks up a bit especially given that the recent increase in oil and gasoline prices will increase overall CPI and may push against growth in consumption.  Average weekly hours remained at 34.5 hours.

We won't go through every industry, but a few things stood out.  
  • Hiring of only 6K in construction, after a disappointing 9K during May, was surprising.  The hiring of 36K people in the construction space during April, thanks to 'pent-up demand' due to the weather factor in prior months, may have been the reason behind less hiring in May and June.
  • Based on the employment sub-indexes of regional surveys and the official ISM manufacturing report, we did not expect additional hiring in manufacturing in June; but 16K people were hired.
  • While jobs in retail trade increased m/m pretty much across the board, the overall 40.2K increase (compared with only 10.5K in May) was driven mainly by huge growth in auto sales.  
  • Professional and business services added 67K jobs but they were mostly low-paying jobs in administrative and support services areas.  Jobs in temp help services grew by 10.1K.  
  • This has become the norm: jobs in health care and social assistance went up by 33.7K.
  • Leisure and hospitality added another 39K jobs, which was surprising as we thought the summer seasonal hiring would slow down a bit, but of course that was not the case.  
  • And we should not forget to mention that those great government jobs added another 26K to the NFP count.

ISM services was also released this morning.  It came in slightly below expectations, 56.0 vs 56.2 and lower than May's 56.3.  The employment sub-index increased nicely, which was also shown in the BLS employment report.  

Initial jobless claims of 315K was higher than the 314K consensus.  Not much volatility is seen in initial jobless claims during the last three months as the figure has been pretty much the same as the 4-week moving average.  

Lastly, the ISM manufacturing number was released on Tuesday morning.  The 55.3 figure was above our 55.0 projection but below the Street's 55.6 expectation.  In addition to the overall index declining slightly from the prior month, its employment sub-index was unchanged; although it remained above 50.0.  

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