Nonfarm Payrolls, Hourly Earnings Paint a Cloudy Picture

Labor data spurs turbulent session. Swap rates and Treasury yields ended mixed in a volatile session, fueled by a miss in nonfarm payrolls and an average hourly earnings beat. The 2-year yield fell 4bps to 4.94%, a considerable fall from its level of 5.02% just before the data releases. The 10-year yield climbed 3bps to 4.06%, finalizing a ~23bp increase on the week.

Solid June employment report provides fuel for another Fed hike, but some data was cooler than expected. Following yesterday’s ADP employment data, nonfarm payrolls surprised by coming in slightly under expectations, signaling that job gains are moderating. Elsewhere, the unemployment rate fell to 3.6% from 3.7% last month and average hourly earnings increased both MoM and YoY. Overall, the releases will likely keep the Fed on track for further hikes given healthy job growth and wage gains, but also signaled that the labor market lost some steam in June. Looking ahead, higher labor participation among those 25-54 years old may be a sign that the structural mismatch between labor supply and demand is coming into better balance. Commenting on the releases, Chicago Fed President Goolsbee said, “Overall, the job market is outstanding, and is getting back to a balanced, sustainable level.”

Week ahead. CPI (Wednesday), PPI (Thursday), and Michigan consumer sentiment (Friday) will headline the week. Fed activity will include commentary from voters Barr, Kashkari, and Waller, as well as non-voters Daly, Mester, Bostic, and Bullard.