MNI 5 THINGS: June US Payrolls Seen +195,000, But Upside Risk

     WASHINGTON (MNI) - Analysts expect the June U.S. employment report to post

a more modest gain than in May, with a median estimate for a gain of 195,000 for

headline payrolls and a 189,000 gain for private payrolls in June. Analysts also

expect average hourly earnings to rise 0.3%, while the average workweek is

expected to remain at 34.5 and unemployment to remain at 3.8%.

     Ahead of the release on Friday, we outline five themes for particular

attention.

--MARKETS AND ANALYSTS AGREE ON AHE 

     Both markets and analysts are expecting average hourly earnings to rise

0.3% in June. Markets and analysts only occasionally forecast the exact same

number, with only three such occasions since July 2017. Only one of those times

were both on target. When both analysts and markets have the same forecast for

average hourly earnings, their average miss is only 0.07pp versus the absolute

average miss for analysts at 0.09pp and for markets at 0.14pp, indicating that

even if the report surprises both markets and analysts, it will likely only be a

minor surprise.

--MARKETS EXPECT SOFTER GAINS THAN ANALYSTS 

     While markets and analysts agree on what they expect for average hourly

earnings, their views delineate slightly for what to expect for growth in

headline payrolls. Markets are expecting a mildly softer gain of 190,000 while

analysts are expecting 195,000 for headline payrolls. However, both forecasts

are down from the 223,000 gain in May. Markets and analysts overestimate and

underestimate the equally as often, with seven overestimates and six

underestimates each. While markets tend to have a larger average overestimate

than analysts, their underestimates are relatively similar with markets

averaging an underestimate of 41,000 while analysts have an average

underestimate of 42,500. This should reaffirm that the payrolls number is likely

to fall somewhere in line with both analyst and market expectations.

--HISTORY SUGGESTS UPSIDE RISK FOR PAYROLLS

     In the last 20 years, there have been 9 underestimates and 10 overestimates

for headline payrolls in June. Most of the overestimates, however, occurred over

10 years ago, and recently that trend has flipped. In each of the last five June

reports, analysts have underestimated the headline number, with an average miss

of 54,000, somewhat higher than the absolute average miss over the last 10 years

of 49,000. If Friday's report follows the recent trend, a larger-than-expected

gain in headline payrolls is likely.

--UNEMPLOYMENT RATE TO REMAIN HISTORICALLY LOW

     Last month, the unemployment rate, at 3.8%, reached its lowest level since

2000. Most analysts are predicting that unemployment will continue to hold at

this level in June. However, some analysts are indicating that while the labor

market will remain strong, the upward trend in job growth will begin to decline,

citing a decrease in temporary help employment as a significant reason for this.

It is interesting to note that as the labor market moves closer to full

employment and the number of available jobs is rising, some private sector

employers are finding it increasingly challenging to fill positions due to an

inability to find qualified candidates. If job growth continues at its current

rate, skilled labor shortages could spread to more industries and prevent

companies from growing.

--LABOR FORCE MAY NOT BE GROWING FAST ENOUGH

     It is possible that a portion of the continued drop in unemployment could

be attributed to a shrinking labor force, as Baby Boomers continue to exit the

labor force and retire. As unemployment began to decline from its post-2008 peak

of 10% in October 2009, so too did labor force participation decline from 65% in

October 2009 to 62.7% in May 2018. Additionally, the annual rate of growth of

the US working age population has been lower than one percent for the past ten

years, a historical first since 1961. This hints that the labor force may not be

growing fast enough to replace all of the vacancies left by new retirees.

However, since new job creation has made up a significant portion of the recent

employment growth, a shrinking labor force could only account for a fraction of

the decline in unemployment.

--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com

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