U.S. nonfarm payrolls shocker reviewed - Westpac

Analysts at Westpac review last week's shocker in the U.S. jobs data.

Full reveiw:

"US jobs printed on the substantially weaker side in May, even allowing for striking Verizon workers which removed 37k from the headline. Jobs grew a paltry 38k in the month (vs consensus at 160k) and the last two months were revised down by a hefty 59k. Even excluding the Verizon effect, a pronounced slowdown in the monthly pace of jobs growth is now apparent: +233k (Feb), +186k (Mar), +123k (Apr) and +38k (May), or +75k if one throws striking Verizon works back into the sample. This monthly profile is beginning to look weaker than the average profile seen in past “soft patches” that have periodically bedevilled the US economy during this post-crisis recovery. The 3mth average is now down to a paltry 116k, the weakest since mid-2012.

Today’s data perhaps just adjusts the labour market back into line with what have after all been a couple weak quarters for the US, with Q4 GDP at +1.4% and Q1 at +0.8%. That aside, supporting the weaker reading, household employment grew just 26k. The labour force shrunk by a stunning 458k, dragging the participation rate down to 62.6%, unwinding a good amount of what was a nascent uptrend for the last 6 months. The decline in the labour in May follows a large 362k decline in the prior month too.

The sharp decline in the labour force in the last couple months of course defies hopes that disenfranchised workers will be making a return to the jobs market. By industry weakness is broadbased: construction (-15k), manufacturing (-10k), info tech (-34k), temp help -21k (often regarded as a leading indicator). Admittedly retailing jobs firmed +11k, but that’s cold comfort against weakness in many industries.

Average hourly earnings rose 0.2% (+2.5% ann) while the unemployment rate fell to 4.7% - a new cycle low, but one that heavily exaggerates the true health of the labour market given the collapse in the labour force.

The upcoming UK referendum along with this jobs report completely removes any prospect of a 15 JuneFed hike. July may be in doubt too – now that the monthly jobs profile through Q2 shows a clear slowing. A solid bounce back in June payrolls ahead of the 27 July FOMC may not be enough for the Fed. Those on the cautious side of the spectrum may want to see a couple months at least of steadier employment growth before they sound the all clear."