Market Wire: US job creation slows, but evidence of a turning point remains thin

The US job creation engine missed forecasts in June for the first time in 15 months, helping relieve pressure on the Federal Reserve’s monetary tightening trajectory. According to data released by the Bureau of Labor Statistics this morning, 209,000 jobs were added, slipping from a revised 306,000 in the prior month, suggesting that the economy is beginning to cool after one of the most aggressive monetary tightening cycles on record. The unemployment rate fell to 3.6 percent from 3.7 percent in May, with the participation rate holding at 62.6 percent.

Average hourly earnings rose 4.4 percent year-over-year, broadly in line with expectations, and still far beyond levels that would suggest inflation risks are receding at a comfortable pace.

Ahead of the release, economists had forecast a 240,000-job gain (although markets likely expected more) and the unemployment rate was seen moving down to 3.6 percent.

The dollar is inching lower, equity futures are up, and yields are coming down as traders lower the odds on additional rate hikes beyond the Fed’s July meeting. Two-year Treasuries are yielding less than 5 percent as we go to pixels, reversing some of yesterday’s gains. But - although job gains appear to be losing momentum - they remain well above long-term trend levels, and are certainly not signalling an incipient downturn. We think some of this reaction could fade in coming hours.

North of the border, Canada added 59,900 jobs in June, up from the -17,300 job loss reported in the prior month as the economy continued to defy expectations for a more profound slowdown. 109,600 full-time roles were created against a loss of 49,800 part-time positions. The unemployment rate moved up to 5.4 percent. Economists had expected a 20,000-job gain, with unemployment holding near 5.1 percent. Average hourly wages rose 4.2 percent on a year-over-year basis, following an increase of 5.1 percent in May.

The Canadian dollar is up almost 40 pips, but is losing momentum, and remains down on the week.