May’s non-farm payrolls of 38,000 came in well below expectations of 160,000. Furthermore, April’s payrolls were revised downwards from 160,000 to 123,000. The unemployment rate fell from 5.0% to 4.7% as the workforce shrank (having been rising since September last year, the participation rate has fallen back in April and May). Chart 5 below puts these numbers context. While the poor payrolls are of some concern, it is too early to say that they are the start of something more pronounced. There have been several months during the last six years when payrolls have come in well below 100,000 but did not signal the start of a downward trend. That said, we are now closer to the point at which employment is more likely to start to fall, so these numbers should be taken more seriously.
One conclusion that can be drawn from the data is that the probability of a June or July rate rise from the Fed is now much lower.
Elsewhere, unemployment rates in Japan, the UK, and Europe continued to fall. As can be seen in Chart 4 below, the average of the four countries/regions still has some way to fall before it hits the low point in the previous cycle.
Published in Investment Letter, June 2016
The views expressed in this communication are those of Peter Elston at the time of writing and are subject to change without notice. They do not constitute investment advice and whilst all reasonable efforts have been used to ensure the accuracy of the information contained in this communication, the reliability, completeness or accuracy of the content cannot be guaranteed. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment.
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