US: Labour market slack widens for fourth consecutive month – ING

Rob Carnell, Chief International Economist at ING, notes that following a non-descript US labour report for April, slack is still widening, though they don’t see this as pivotal for forthcoming rate decisions.

Key Quotes

“For all its impreciseness, one thing you can say about last Friday’s labour market report: it did not make a June rate hike look like a done deal.

Indeed, the Federal Reserve’s index of labour market slack widened further, making it the fourth consecutive widening – coincidentally or not – since the Fed tightened rates back in December 2015.

Still, the degree of slack, based on our cumulative LMCI measure, is still very small, and historically, is not even consistent with a 25bp rate cut from the Fed. But if this continues, then it will make the next Fed rate decision that much harder.

Another thing we cannot say with any certainty following this latest labour report, is whether the release showed the labour market coming into line, albeit with lags, with weak investment data, and in line with a broader downturn in the US business cycle. Just as easily at this stage, we could attribute its mediocrity to the usual noise typical for this data, though again, a further month of payrolls weakness will get our recession radars twitching.

Everything remains very unclear in the US right now. All FOMC rate meetings remain live and in play – it is just that the data is giving us no clean message right now. We are sticking to our 3Q16 (sole for 2016) rate hike view. There is no reason at this stage to do anything else.”