[USD] FX Alert June Non-Farm Payrolls Decrease -125K

June Non-Farm Payrolls Decrease -125K

The June Labor Department employment situation report revealed a decrease of -125k in non-farm payrolls, versus the revised +433k increase that occurred in May (prev. +431k), just above market expectations for a -130k decrease. This comes alongside a decrease the unemployment rate to 9.5% (lowest reading since July 2009), below expectations for a 9.8% reading. Meanwhile, average hourly earnings came in -0.1% m/m (+1.7% y/y), versus the revised +0.2% m/m (+1.9% y/y) increase seen in May (prev. +0.3% m/m, +1.9% y/y). Meanwhile, average weekly hours edged lower to 34.1 in June (down from 34.2 in May). According to the release, the headline reading was weighed down by the unwinding of census activity, reflected in a -198k decline in Federal Government jobs. Private sector jobs increased +83k, roughly in line with downwardly revised expectations seen in the wake of Wednesday's ADP employment release.

Non-farm payrolls saw an overall decrease -125k, weighed down entirely by the unwinding of census activity, reflected in the -198k decline if Federal Government employment. This follows upward revisions posted for both May (+433k, from +431k) and April (+313k, from +290k), providing modest support for the overall level of registered job improvement (net +25k increase). Despite the decrease seen in the headline measure, this report shows modest further improvement via underlying components versus the under-whelming results seen in May, though still reflective of the current softness seen across most data in recent weeks. Nevertheless, broader improvement in employment conditions seen elsewhere keep us on solid footing for employment gains in the coming months, though further clouding is likely to be clouded by census accounting. Overall, we continue to see growing support for employment prospects moving forward, particularly as goods producers continue to gain traction, replenishing previously eroded inventory levels. In terms of goods, modest improvement came via manufacturing jobs, something that could provide a boost to estimates in the coming months (certainly less of a drag). Despite the overall decrease seen in the non-farm payrolls result, the unemployment rate decreased to 9.5% (down from 9.7%), below expectations for a +9.8% reading, reflecting a contraction in the labor force (-652k, following the -322k decrease seen in May). Meanwhile, the U6 measure (broadest measure of unemployment) decreased to 16.5% in June, from the 16.6% reading seen in May, lagging the shift in the headline U3 measure. The diffusion index decreased to 52.2 in June, down from 54.8 seen in May (23.0 in June 2009). With respect to manufacturing, the diffusion index decreased to 52.4, down from 62.2 seen in May (11.0 in May 2009).

Looking closer at the underlying components, the only declines in the private sector came from construction (-22k), financial (-12k) and information jobs (-8k). However, clear downward pressure came via government, posting a -198k decline in Federal Government employment (-208k decline for overall Government jobs, continuing to be weighed down by state and local government layoffs). Within the context of services, readings continued to increase, accelerating from the weaker reading seen in May. Overall, gains were seen from business services (+46k), supported by a +21k increase seen in temporary help (up from +25k seen in May), education/health (+22k), trade/transport (+7k) and leisure/hospitality (+37k). As was the case in June, the further unwinding of census activity will likely pose additional headwinds in July, continuing to place a greater emphasis on private payroll performance.

Moving forward, we anticipate improvement in goods-producers will likely continue as consumer sentiment appears to be leaning towards greater consumption (despite any near-term weakness), seeing additional upward pressure as we move further into 2010. Although conditions remain vulnerable, there are notable prospects for further stabilization in the coming months, likely to find greater traction stemming improvement in consumption (despite the scope of job losses seen in this downturn). Seasonal adjustments continue to leave open the possibility that much of these results could be revised lower (but the recent track record of revisions has been to the upside). In terms of the growth outlook, we anticipate solid growth continuing well into 2Q10 (3.6%, with risks to the downside), leading to some deceleration in 2H10 (2.0-2.5% quarterly averages).

Maxwell Clarke Eric Feld
Chief US Economist Senior Account Manager mclarke@ideaus.com efeld@ideaus.com
(212) 835-1330
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