It’s jobs day in the U.S. and with the June Federal Reserve meeting just around the corner, today’s report could play a big role in the vote in a couple of weeks’ time.
There is clearly a desire within the Fed to raise interest rates again over the summer, given how hawkish the commentary has been in recent months but they have repeatedly stressed that the data must perform in line with expectations. The economic data has improved considerably recently, from retail sales and personal spending figures to the inflation data, but I think policy makers would like to see at least one more strong jobs report before they take the plunge.
A weaker jobs report would also provide a domestic argument for holding off in June, with the U.K. referendum on E.U. membership a week later making the decision that much tougher. Even with strong jobs data, I think some policy makers will opt to wait until July and be confident that one potential risk – a Brexit – has been removed, rather than have to possibly backtrack at a later date. The downside to this though would be that they’d have to hike at a meeting when there’s no press conference after, or wait until just before or after the U.S. Presidential elections, none of which are particularly desirable.
More important than the headline non-farm payrolls and unemployment figures today is the average hourly earnings figures, given that poor wage growth has widely been seen as one of the key things that has held back spending and weighed on inflation. Another month of around 2.5% annual wage growth, I think, would give Fed officials confidence that wage pressures are picking up and the economy is on the right track. That said, the markets have a tendency to react primarily to the NFP number and if this is weak and markets bet against a hike in June, pushing the implied probability to the high single or low double digits, the Fed may be deterred from hiking this month.
For a look at all of today’s economic events, check out our economic calendar.