US: Labor market getting tighter – AmpGFX

The analysis team at Amplifying Global FX Capital points out that the rise in non-farm payrolls in May was less than expected, however, the fall in the USD and yields on Friday is surprising considering the rapid further tightening in the US labor market; as shown by the sharp drop in the unemployment rate and broader measures of under-employment.

Key Quotes

“At 4.3%, the unemployment rate is now below the cyclical low point in 2006/07 (4.4%), and below the average of two economic cycles from 1995 to 2007 prior to the Global Financial Crisis in 2008 (5.0%).  It is also now clearly below the FOMC’s current median estimate of NAIRU (4.8%).”

“The broad U6 under-employment measure that accounts for discouraged and marginally attached people in the labor force, and part-time workers for economic reasons, has dropped by a full percentage point in the last four months to 8.4%; now also below the 1995-2007 average (8.7%).”

“The labor market has tightened noticeably in recent months and suggests that the slower pace of payrolls growth may reflect supply reaching constraints rather than weaker demand.  Wages have not responded to tightening yet, but the risk is that they will before too long.  As such, the Fed should at least maintain its gradual policy tightening outlook.”