U.S. Nonfarm Payrolls (July 2015)

Another solid jobs report suggests the economy is gaining strength and keeps the Fed on track to raise rates as early as the next meeting. U.S. nonfarm payrolls rose 215,000 in July, close to expectations, following an upwardly-revised gain of 231,000 in June. The increase is consistent with the healthy average for the year (211,000), though it's down from the strong 260,000 pace last year. The jobs gains were spread across industries, with even a modest advance in oil and gas drilling.

Household survey employment rebounded 101,000, enough to keep the jobless rate steady at a seven-year low of 5.3% given a steady participation rate (at 37-year lows). The "all-in" jobless rate inched down to 10.4%, supported by a further decline in the number of involuntary part-time workers, as well is in the number of marginally attached workers to the labour force (after seasonal adjustment).

"Despite the relatively low jobless rate, wages stayed subdued, with average hourly earnings up 0.2% in the month and 2.1% y/y, showing little sign of breaking out of a sideways trend. Aggregate work hours jumped 0.5%, and are up 2.7% annualized from the second quarter. Even assuming minimal productivity growth (as per recent trends), our call for 2.8% GDP growth in Q3 is right on track", noted BMO Economics.

The Fed will take plenty of comfort from continued "solid job gains". Although the jobless rate held steady, it has fallen nearly one percentage point in the past year, and is already within the central tendency range (5.2% to 5.3%) that the FOMC anticipated (back in June) for the fourth quarter of the year.

"The July payrolls report clearly denotes "some further improvement in the labor market", a key pre-condition for rate lift-off. Treasuries, especially the short end, weakened following the report, as federal funds futures are now pricing in above-even odds of a September move", says BMO Economics.