BofA: Nonfarm payroll growth surged to 288,000 in June, exceeding expectations of a trend-like 215,000 clip. In addition, there were revisions in the prior two months totaling +29,000, with May payroll growth now at 224,000 and April payroll growth at 304,000 -the first above-300,000 print since January 2012. The three-month moving average for payroll growth is now a robust 272,000. Meanwhile, the unemployment rate dropped to 6.1% (6.085% unrounded) from 6.3%. This decline was for good reasons, as labor force participation held steady at 62.8% and household employment jumped higher by 407,000. On balance, the report showed very solid improvement in the labor market in June, but is a bit of a challenge for the go-slow view of the Fed – the unemployment rate has already reached the Fed’s 4Q 2014 forecast of 6.0 to 6.1%. That said, still-low wage growth and the lack of a rebound in labor force participation will keep the core dovish FOMC members easy. All things considered, there is now an increased risk of an earlier first rate hike, though Fed officials are not prone to changing their outlook dramatically on one report alone and will likely take some time to reassess.
Barclays: Overall, this report is unlikely to have much effect on Fed policy in the near term, as we expect the FOMC to continue to taper asset purchases steadily. However, in a familiar pattern, the unemployment rate is already in the range of the FOMC’s year-end forecast of 6.0-6.1%. If the unemployment rate continues to fall faster than the Fed expects, there is a risk that the FOMC will raise rates before our expected first hike in June 2015, particularly if core PCE inflation moves above the Fed’s 2% target early next year, as we expect.
CIBC: The fireworks started a day ahead of the July 4th holiday, as US employment figures for June beat consensus forecasts almost across the board. Even though expectations had been raised by a strong ADP survey the day before, a 288K rise in payrolls and a two-tick dip in the unemployment rate to 6.1% were enough to light another fuse under the previously beleaguered US$, while taking some of the sparkle off Treasuries.