June’s gain in payrolls report increases chance of September tapering

by: Peter de Bruin

US nonfarm payrolls rose by 195K in June, which was better than the consensus forecast of a 175K increase. What is more, there were upward revisions to the tune of 70K to the previous two months, with employment in April now seen at 199K (was 149K) and in May estimated at 195K (was 175K). As a result, average employment growth in the past three months amounted to 196K, up from a three month average of 179K in May. This suggests that the labour market recovery gained a bit of traction in the past months. That said, the unemployment rate in the Household survey held steady at 7.6% as the gain in household employment was matched by an almost equal inflow into the labour force. This was actually a bit weaker than the consensus forecast, which had expected a drop in the unemployment rate to 7.5%. Still, we think that, on balance, today’s report further increases the chances that the Fed will start to taper its QE programmes in September. Indeed, after the release of the report, yields rose strongly, while the dollar strengthened.