This is a tough employment report to interpret. The headline job gain of 287,000 looks awesome, but there is a lot of mediocrity elsewhere in the report.
Here are my immediate thoughts.
A gain of 287,000 by itself isn't meaningful.
You should never take economic figures too literally. Always take the figures in context with other related figures to try to get a full picture. In this case, that +287,000 headline stands out in complete contrast to almost everything else about this report. Most obviously, the fact that the May job gain was revised down to just +11,000. Are we to believe that no one wanted to hire at all in May, but suddenly were hiring like mad in June? Whatever the reason why this strange divergence, it is probably best to think about the economy as having added about 150,000 jobs per month over the last two months.
As I have written a few times recently, this puts us right in the danger zone. Based on some historical research on pre-recession periods, I believe that if hiring drops consistently below 175,000 per month, it is likely we will be hitting a stall speed and job growth will likely drop toward zero. There have been a few times when job growth fell briefly into this danger zone, but rebounded quickly. Maybe this +287,000 gain is the start of just such a rebound, so it is at least a positive sign. But given how bad the figure was in May, I want to see another month of gains solidly above +175,000 next month before I feel comfortable. Something like +150,000 won't be good enough for me.
Are we at full employment?
There are many economists arguing that a somewhat slower pace of job gains (something like the +150,000 I just mentioned) is to be expected as we approach full employment. I have two problems with that view. One is that it isn't consistent with history as I said above. We don't see gentle slowdowns in hiring in past periods. We see steady job gains until such time as the economy turns and then suddenly hiring drops quickly.
But the other issue is that we really aren't seeing consistent acceleration in wage growth. Last year at this time I was arguing the opposite, as it really looked like wages were picking up. But that now appears to be a phase shift (we move to a mildly higher rate of growth, but have plateaued there). This month wages only grew 0.08%, which leaves the year-over-year figure at +2.60%. That's up slightly from where the year-over-year figure was last month (at +2.5%), but we can't honestly call this progress. Consider this. Changes in year-over-year figures are always a function of the new number added and the old number that rolls off. The next two months will see some larger wage gain numbers roll off of +0.3% in July and +0.4% in August. That means that unless we can gain at that pace over the next two months, the year-over-year figure will be dropping. If we just exclude those two months and annualize the last 10 months, wage gains have come at a 2.35% pace, barely better than what we say in 2013-2015.
Is this report bullish or bearish?
The stock market sure likes it, with futures surging after the report. Bonds initially thought it was hawkish, with the 30-year briefly trading down about 1%. But now longer bonds are back in the green while shorter bonds are still higher in yield. This tells us that, on the margins, the Fed is somewhat more likely to be hiking sometime in 2017. But longer term, traders have little confidence that this report is evidence of a sustainable growth pattern.
I'm even more skeptical. I don't see much to like in this report with the exception of one number. And even that number is suspect. I'm open minded that I could be wrong and we just hit some kind of springtime lull in hiring. Maybe brought on by the severe energy weakness in February. But I think more likely we are seeing the beginning of the end of this growth cycle. The next two months are very important to tell us which way we are headed.