NFP Preview: Job creation in June probably above trend growth - Danske Bank

On Friday, the US employment report will be released. According to analysts from Danske Bank, the June NFP is likely to be stronger that in recent months. 

Key Quotes: 

“The jobs report for June, due on Friday, will probably turn out somewhat better than the previous three reports. Although there are some signs that labour market progress has slowed in 2017, there is reason to believe that the June report will be better.”

“This is due to some likely recovery after three rather weak reports and because indicators like PMIs suggest higher employment growth. We expect employment rose 180,000 in June and we continue to see the service sector as the main contributor with an expected increase of 150,000 and manufacturing contributing 15,000.”

“Note that even though job growth has slowed in the first five months of 2017, it is still significantly higher than the structural growth in the labour force. Hence, it is strong enough to tighten the labour market and lower the unemployment rate over time.”

“We estimate the unemployment rate remained flat at 4.3%, but stress that if participation rates start to increase again we may see a rise in unemployment, which should not be seen as a cause of concern.”

“Finally, we estimate average hourly earnings increased 0.3% m/m, implying a wage growth rate of 2.6% y/y.”

“We expect the Fed to hike one more time this year in December due to the focus on the unemployment rate and easy financial conditions. By skipping September, the Fed can get some more clarification about whether the low inflation prints in recent months were temporary or not. Instead, we expect the Fed to make an announcement on the balance sheet in September.”