US nonfarm payrolls expected to increased by a net 160k jobs in June - Nomura

Research Team at Nomura, notes that the May employment report shocked to the downside, as it showed that the US labor market only created a net new 38k jobs, well below market expectations.

Key Quotes

“Some of the weakness was attributable to approximately 30-40k union workers being on strike during the month. But even after accounting for this factor, the May report showed a notable slowdown in job growth. Looking at recent trends, it appears that pace of hiring has slowed, as the gains in nonfarm payrolls have slowed in every month since February. It doesn’t appear that involuntary layoffs are on the rise, as initial jobless claims remain at historically low levels. This may mean that job growth is slowing as the US labor market nears “full employment” levels.

We forecast that US nonfarm payrolls increased by a net 160k jobs in June, with 10k workers coming from the public sector, implying that private payrolls gained 150k workers. If realized, this would indicate that the sharp slowdown in job growth in May was an aberration and that the pace of hiring remains steady, albeit at a slower rate than in late 2015/early 2016. Our forecast takes into account a reversal in the decline in payrolls in the information sector of approximately 35k due to strike activity in May.

The June ADP employment report showed that manufacturing payrolls declined by 21k. In addition, regional manufacturing surveys showed that employment indicators were generally weak over the month. As such, we forecast that manufacturing payrolls shed another 10k workers in June.

The risks around our payrolls forecast are two-sided. On one hand, the ADP employment report suggests job growth remained steady over the May-June period (~170k). Given that the official payrolls number fell well below this trend in May, we could see a strong rebound in June. (It is also possible that we could get a strong upward revision to the May figure.) On the other hand, indicators of labor demand, such as the number of online vacancy postings, dropped sharply again in June following a sizable decline in May. A slowdown in vacancies could be a sign that hiring activity has slowed and could pose some downside risk to our already below-consensus nonfarm payrolls forecast.

Elsewhere, we expect the unemployment rate to be unchanged at 4.7% in June. We see some upside risk to our forecast as we may see an increase in the labor force participation rate following two months of declines. Last, we forecast that average hourly earnings grew by 0.20% m-o-m (2.7% y-o-y). Read more: US: June Employment Preview, Economics Insights, 7 July 2016.”