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Strong U.S. Hiring Rebound Dilutes Case for Larger Fed Cut

Reade Pickert and Jeff Kearns
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U.S. Jobs Gain of 224,000 Tops Forecasts, Dilutes Fed-Cut Case

(Bloomberg) -- U.S. hiring rebounded in June and topped all estimates of economists, a sign of labor-market strength that may ease calls for a Federal Reserve interest-rate cut. Stocks fell while Treasury yields and the dollar advanced.Payrolls climbed 224,000 after a downwardly revised 72,000 advance the prior month, according to a Labor Department report Friday. The jobless rate ticked up to 3.7% from a half-century low of 3.6% while average hourly earnings increased 3.1% from a year earlier, slightly less than projected.Read more: TOPLive blog on the jobs reportThe report may offer President Donald Trump another chance to boast that the world’s largest economy is in the best shape ever. Despite that, he’s made repeated calls for Fed Chairman Jerome Powell to cut interest rates as the record expansion shows other signs of slowing just as the 2020 campaign begins.The job gains signal the labor market remains firm. Though the economy still faces trade tensions and below-target inflation, signs that economic growth remains intact may challenge calls for the Fed to cut rates this month -- especially those for a half-point reduction. Traders trimmed bets on Fed rate cuts after the report though still see a quarter-point cut in July.“It’s a really, really strong report across the board,” Torsten Slok, Deutsche Bank chief economist said on Bloomberg Television. “If the Fed is thinking about making insurance cuts, you think about what they are insuring themselves against?”Revisions subtracted 11,000 jobs for the prior two months, though the three-month average rose to 171,000, the highest since March.The job gains were broad-based across industries and included rebounds in manufacturing, which added 17,000 jobs, the most since January, and construction payrolls rising by 21,000. The weakness in retail persisted with a fifth straight drop in employment.Average hourly earnings rose 0.2% from the prior month, missing estimates, following an upwardly revised 0.3% gain, while annual wage gains held at 3.1%.The participation rate, or share of working-age people in the labor force, increased to 62.9% following 62.8% as steady wage gains pulled more Americans from the sidelines and into the workforce. The average workweek was unchanged at 34.4 hours.“A 25-basis-point cut is still on the table,” but the report removes the chance of a 50-basis-point reduction, said Ryan Sweet, head of monetary-policy research at Moody’s Analytics Inc. “It makes the debate for a cut more lively. This job number eases their concerns that the labor market was slowing more abruptly than they anticipated, but the trend is that it’s still moderating.”Other DetailsThe U-6, or underemployment rate, increased to 7.2% from 7.1%; the gauge includes part-time workers who’d prefer a full-time position and people who want a job but aren’t actively looking.Government payrolls jumped by 33,000, the most in almost a year on a boost from the local level. Private employment rose by 191,000 after increasing 83,000, contrasting with ADP Research Institute data this week that showed a smaller gain in June.Economists surveyed by Bloomberg had projected 160,000 new jobs with unemployment at 3.6% and annual wage gains at 3.2%. \--With assistance from Chris Middleton, Sophie Caronello, Ryan Haar, Katia Dmitrieva and Mark Tannenbaum.To contact the reporters on this story: Reade Pickert in Washington at epickert@bloomberg.net;Jeff Kearns in Washington at jkearns3@bloomberg.netTo contact the editor responsible for this story: Scott Lanman at slanman@bloomberg.netFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

(Bloomberg) -- The American jobs engine revived in June as hiring topped all economists’ estimates, relieving pressure on the Federal Reserve to slash interest rates this month while leaving it room to make a small reduction if it wants.

Nonfarm payrolls climbed a solid 224,000 last month, the most since January, after a disappointing 72,000 May advance, a Labor Department report showed Friday. At the same time, the jobless rate ticked up to 3.7% from a half-century low of 3.6% and average hourly earnings increased a less-than-projected 3.1% from a year earlier.

Against a backdrop of subdued inflationary pressures, the wage and unemployment-rate data keep open the possibility of a quarter-point cut in the Fed’s benchmark interest rate, either at the end of this month or later. Traders trimmed bets on rate reductions after the report though still see a 25-basis-point cut in July, and President Donald Trump’s top economic adviser kept pressure on the central bank to act.

“We’ve always seen a more notable deceleration in employment ahead of a cut,” said Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, who projected a 205,000 gain in June payrolls. “I’m not as convinced as the market that the Fed has to move in July. Rate cuts are likely coming but the Fed has to be very careful to not be seen as pushed by the market and the White House.”

Trump tweeted “JOBS, JOBS, JOBS!” after the report and has repeatedly boasted that the world’s largest economy is in the best shape ever. Despite that, he’s made repeated calls for Fed Chairman Jerome Powell to cut interest rates as the record expansion shows other signs of slowing -- just as the 2020 campaign begins.

What Our Economists Say

While the Fed dropped “patient” from its policy guidance at its June meeting, the strength in the pace of hiring will enable the FOMC to delay the onset of a mini-easing cycle until September; but the central bank will still need to cut in order to steepen the yield curve.-- Carl Riccadonna and Yelena Shulyatyeva, economistsClick here for the full note.

Larry Kudlow, director of the White House National Economic Council, said on Bloomberg Television Friday that the Fed should “take back the interest-rate hike.” The central bank raised rates four times last year, though it was the fourth increase, in December, that’s proved the most controversial.

Though companies still face the uncertainty of trade tensions and inflation remains below the Fed’s goal, the broad hiring gains in June provide a solid backdrop for consumer spending -- the biggest part of the economy. Job growth in manufacturing was the strongest in five months, despite concerns about tariffs, while employment was solid in business services, health care, construction and transportation.

“It’s a really, really strong report across the board,” Torsten Slok, Deutsche Bank chief economist, said on Bloomberg TV. “If the Fed is thinking about making insurance cuts, you think about what they are insuring themselves against?”

At the same time, wage growth appears to be flattening out, albeit at a still-strong level. Average hourly earnings rose 0.2% from the prior month, missing estimates, following an upwardly revised 0.3% gain, while annual wage gains held at 3.1%.

The participation rate, or share of working-age people in the labor force, increased to 62.9% following 62.8% as steady wage gains pulled more Americans from the sidelines and into the workforce. The average workweek was unchanged at 34.4 hours.

“A 25-basis-point cut is still on the table,” but the report removes the chance of a 50-basis-point reduction, said Ryan Sweet, head of monetary-policy research at Moody’s Analytics Inc. “It makes the debate for a cut more lively. This job number eases their concerns that the labor market was slowing more abruptly than they anticipated, but the trend is that it’s still moderating.”

(Adds Trump tweet.)

--With assistance from Chris Middleton, Sophie Caronello, Ryan Haar and Katia Dmitrieva.

To contact the reporters on this story: Reade Pickert in Washington at epickert@bloomberg.net;Jeff Kearns in Washington at jkearns3@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Vince Golle

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.