domingo, 14 de junio de 2015

domingo, junio 14, 2015
Why Employment Is Scaring The Fed
             

Summary
  • U.S. nonfarm payrolls are improving.
  • Meanwhile, core-components of the labor market, such as wages, are not keeping pace.
  • With the Fed unlikely to raise rates in 2015 due labor market slack, the dollar could weaken in coming months.
The lending rate in the U.S. should stay low as core-components of the labor market remain weak, weighing on the value of the dollar. The U.S. currency is represented by PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP).

In May, the nonfarm payrolls figure came in at an annual pace of 2.14%, above the previous month's reading of 2.11%. While employment has remained stable the past few years, it has just recently begun to accelerate higher, seen below. The internals of the labor market, however, are presenting a picture of continued slack.

(click to enlarge)
Data provided by the Federal Reserve


The Job Openings and Labor Turnover Survey is a report that details more specific data within the monthly payroll release. A key statistic found within JOLTS is the hires to openings ratio.

When employers are significantly hiring, the indicator rises, signaling a strengthening labor market.

In May, the hires to openings figure came in at an annual pace of -11.04% contraction, down from the previous month's reading of -10.48%. The indicator peaked just before the financial crisis, and in recent months began to decline further, seen below. While more job openings are a positive sign, only filling those positions can help both consumer sentiment and spending measures.

(click to enlarge)
Data provided by the Federal Reserve


Additionally, like the hires to openings ratio, wages have fallen in recent months. In May, the wage figure came in at an annual pace of 2.11%, below the previous month's reading of 2.15%.

While wages were on a slight recovery in 2014, that has been derailed, seen below. Jeffrey Gundlach, popular fund manager of investment firm DoubleLine Capital, has said that he believes suppressed wage growth will force policymakers to wait until 2016 before raising the benchmark rate.
"The odds of a September interest rate hike 'weirdly' have risen, Gundlach said. 'I would take the under on that ... I think the odds of raising rates by December is less than 50 percent,' he added. 
Gundlach said he has been closely watching the year-on-year change in hourly earnings in non-farm payroll figures. 
If the year-on-year change exceeds 1.5 percent [inflation adjusted], Gundlach said he believes the chances for the Fed to raise rates increases," according to Reuters.

As slack remains in the labor force, policymakers are unlikely to tighten monetary conditions.

While headline payroll readings are improving, the composition of the labor market remains weak. More job openings are coming about, but are not being filled at a similar pace.

Moreover, wage pressures are slowing. With lending rates likely remaining low through 2015, the U.S. dollar could weaken in coming months.

(click to enlarge)
Data provided by the Federal Reserve

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