Firts, a few notes from FTN on today's report which the firm classified quite simply as "awesomely bad":
U.S. Jobs ’Awesomely Bad’, Particularly Poor Timing
- “There are excellent statistical reasons to ’throw out’ this result, something the market and the Fed may ultimately do, but not this month,” FTN Financial strategist Jim Vogel writes in note.
- Increasingly negative revisions to nonfarm payrolls are not a sign of labor market health, regardless of what other indicators or Beige Book might tell FOMC
- Economists might start making excuses for May as they see longer-term trend and expect 4-mo. trend to eventually catch up, possibly with outsized recovery in June data
- Even without downward revisions, NFP of +100K would’ve been bad; and if you add in +35K Verizon strikers to today’s number, would only be in the mid-70s
So much for that. as for the question what today's "awesomely bad" jobs report does to future rate hike odds, here is Goldman who now sees a less than 50% probability of a rate hike in either July or September, and of course, no probability in June.
Weak May Payroll Report Likely to Stay Fed’s Hand in June
BOTTOM LINE: Nonfarm payroll employment increased by just 38k in May, far below consensus expectations. The unemployment rate fell to a new cyclical low due to a drop in labor force participation. In light of the weaker-than-expected employment report, we have revised our subjective odds of the timing of the next FOMC rate increase. We now see probabilities of 0% for June, 40% for July, and 30% for September.
MAIN POINTS:
1. Nonfarm payroll employment increased by just 38k in May, well-below consensus expectations for a 160k increase. Earlier months were also revised down by a net 59k, making the result much weaker than expected overall. Employment in telecommunications related jobs declined by 37k, reflecting the strike at Verizon Communications. However, the weakness extended much beyond that category. Goods-producing employment fell by 36k—the largest decline of the recovery—with declines in each of its major components (mining, construction and manufacturing). Excluding the Verizon strike, employment in service-providing industries increased by 98k, down from 144k in April. Temporary help services jobs contracted by 21k, and growth in trade/transportation/utilities was unchanged. A small number of categories improved: education and health employment gained a solid 67k and government employment rebounded, with a 13k following a 7k drop in April.
2. Average hourly earnings increased by 0.2% (mom), or 2.5% from a year earlier. The 12-month gain was above our expectations due to upward revisions to prior months. The average workweek was unchanged at 34.4 hours.
3. The household survey measure of employment gained just 26k after a decline of 316k in April. However, because of another decline in labor force participation, the unemployment rate fell to a cycle low of 4.7% (4.692% unrounded). At this level the unemployment rate is now in line with Fed officials median projection for end-2016, and below their longer-run estimate (from the March FOMC meeting).
4. In light of the weaker-than-expected employment report, we have revised our subjective odds of the timing of the next FOMC rate increase. We now need see probabilities of 0% for June, 40% for July, and 30% for September. Although the report lowers the odds of near-term action, in our view, it also arguably raises the range of possible outcomes. If employment growth rebounds next month but the unemployment rate remains low, the case for hiking after June would become quite strong. Alternatively, if sluggish employment growth were to persist, the FOMC could remain on hold for longer than we currently expect.
In other words, should "weather" persist, which is what Blackrock's Jeff Rosenberg blamed today's jobs collapse on, the Fed will not be able to hike. And just like that the Fed is now slave to not only what China will do, but just how hot (or rainy) it will be this summer.