CHART OF THE WEEK
The US payroll report is one of the most important data releases for the markets and May’s figures, published on June 3rd, certainly made an impression. The May data, marked by both the worst job-creation figure since late 2010 (with only 25,000 jobs created in the private sector) and significant improvement in the jobless rate (-0.3 point to 4.7%) somewhat blur readings of the American economy. Strike action at Verizon Communications weighed heavily on a job-creation figure that would otherwise have been close to 60,000. However, even at the expected levels, job-creation numbers are weak, especially as the figures for previous months have been revised heavily downwards.
Regarding the jobless rate, the first thing to point out is that it is not calculated on the same basis as the statistical survey on job creation, which partially explains the different pictures. In addition, we note that the lower participation rate, i.e. the percentage of working-age people actually employed or seeking employment, accounts for the surprise decline in the jobless rate. Falls in the participation rate automatically lead to a fall in the jobless rate due to people dropping out of the labour market and not being counted as jobseekers.
Although a fall in job creations should not be played down, neither should the volatile nature of this data set. The improvement in weekly jobless figures in the past fortnight is reassuring, as are robust real-estate figures. Nonetheless, we intend to monitor US data closely.
This reading has deadened the chances of a Fed rates increase at its next meeting in mid-June, which were already slim given the date of the British referendum and the associated risks. However, the door to an increase in July remains open if macroeconomic data are reassuring in the meantime.
The opinion expressed above is dated June 3rd, 2016 and is liable to change.
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