U.S. unemployment rate likely to remain flat at 4.3 pct in June, says Danske Bank

The jobs report for June, due on Friday, will probably turn out somewhat better than the previous three reports. Although there are some signs that labour market progress has slowed in 2017, there is a reason to believe that the June report will be better. This is due to some likely recovery after three rather weak reports and because indicators like PMIs suggest higher employment growth.

Employment is expected to have risen 180,000 in June and the service sector is likely to remain the main contributor with an expected increase of 150,000 and manufacturing contributing 15,000. Even though job growth has slowed in the first five months of 2017, it is still significantly higher than the structural growth in the labour force. Hence, it is strong enough to tighten the labour market and lower the unemployment rate over time.

"We estimate the unemployment rate remained flat at 4.3 percent, but stress that if participation rates start to increase again we may see a rise in unemployment, which should not be seen as a cause of concern. Finally, we estimate average hourly earnings increased 0.3 percent m/m, implying a wage growth rate of 2.6 percent y/y," Danske Bank commented in its latest research report.

While most labour market indicators are now stronger than during the recent upturn, the slack indicators still suggest there is some slack left in the labour market, as the number of marginally attached, part-time workers for economic reasons is still high and the number of the long-term unemployed is still elevated. This also suggests that the unemployment gap is not closed yet.

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