Soft US jobs report not enough to stop a June Fed hike - ING

Economists at ING explain that today's US jobs report would have had to be horrendous to worry the Fed, and the sub-consensus wage and jobs numbers won't derail a June rate hike.

Key quotes:

"To us, the latest dip in non-farm payrolls to 138k looks like nothing more than a return closer to the underlying trend. As the US economy is close to, if not at, full employment, we should be seeing a gradual slowdown in jobs growth. Whilst 200k+ jobs growth sounds good at face value, consistently high readings would raise the possibility that there is more slack in the US economy than previously thought. This is a view that the Fed themselves broadly subscribe to, and they won’t be phased by today’s sub-consensus figure."

"What they may find more irritating is wage growth, which marginally disappointed markets by coming in at 2.5% YoY. In reality, this is probably more of a statistical quirk rather than anything fundamental. May had three more workdays than April, and as the data doesn’t adjust for this, average hourly earnings will have been temporarily depressed."

"The underlying story is still a positive one. Labour market tightness still appears to be pushing up pay, but the Fed really needs to see average hourly earnings growth push above 3% if they are to hike more aggressively. And that’s looking increasingly unlikely this year."

"So what does this all mean for the Fed's tightening cycle? Well in reality, it would have taken a horrendous report today to make the Fed think twice about a June rate hike. Other recent data has supported the notion that 1Q economic weakness was “transitory”." 

"But what comes next from the Fed is less assured. Core PCE has struggled to converge on 2%, wage growth has been disappointing and Trump’s fiscal plans are still very uncertain. That means we don’t expect fireworks from the Fed, but even so, we feel a third 2017 rate hike in September still looks more likely than markets are currently pricing."