By Joshua Newell

WASHINGTON (MNI) – Analysts’ expectations for further monetary
accommodation by the Federal Reserve differed widely following the
weaker-than-expected June payrolls report, only muddying the waters
ahead of the next meeting of the Fed’s steering group at the end of the
month.

Analysts agreed the report was indeed disappointing, as non-farm
payrolls grew by just 80,000 for the month, below the 100,000 projected
by economists in an MNI survey.

This followed an upwardly revised 77,000 increase in May, but
downward revisions in April left the net revisions over the prior two
months 1,000 lower than initially reported.

The unemployment rate was unchanged at 8.2%, while the more
encompassing U-6 rate, which includes people only marginally attached to
the labor force, rose 0.1% to 14.9%.

The Fed’s policymaking Federal Open Market Committee, which
recently extended its maturity extension program through the end of the
year, will meet July 31 and August 1, but how exactly they will view
June’s jobs data is unclear.

Michael Englund, Chief Economist at Action Economics told MNI in a
phone interview Friday, “The Fed may have dodged a bullet, as we think
Operation Twist has bought them time.”

Michael Gapen, Barclays’ director of U.S. Economic Research agreed,
saying in a research note released after the payrolls report, “In terms
of policy, we do not believe today’s report is sufficient to shift the
Fed into action at the next FOMC meeting on August 1 as we expect that
most FOMC participants expected sluggish job growth in June when taking
the decision to continue to the maturity extension program through
year-end.”

Michelle Meyer, senior U.S. economist at Bank of America-Merrill
Lynch, believes the same, writing in a research note that “we do not
believe today’s report is sufficient to warrant another round of QE3 at
the August 1 meeting. We believe the Fed will wait for further
confirmation of the slowing trend, making the September meeting more
likely.”

However, other analysts believe this continued weakness in
employment data provides the necessary ammunition for the Fed to do
more.

“Growth in nonfarm payrolls and hours worked are consistent with
extremely sluggish GDP growth in the quarter. All in all, this is a
flirting-with-recession kind of report which Bloomberg News says ‘may
seal the deal on Fed action.’ We concur,” said Chris Low, chief
economist at FTN Financial, in a research note.

Jay Feldman, economist at Credit Suisse, said, “Odds of Fed QE3
before the November elections are going up. Best arguments for the Sep
13 meeting is that a press conference is already scheduled, and Jackson
Hole is in late August. The best argument for Aug 1 is, “What are you
waiting for?”

Feldman continued by saying, “The jobs slowdown looks increasingly
fundamentally driven (as opposed to the “technical” factor of the warm
winter robbing the spring of strength).”

The payrolls trend has indeed weakened recently. Whereas payrolls
grew an average of 226,000 a month in Q1, they have only risen 75,000 a
month in Q2.

Sarah Watts, Economic analyst at Wells Fargo highlighted this,
telling MNI “the report was a bit disappointing, and the trend has
slowed down recently.” However, she also noted there were some positive
indicators within the report.

“Modest gains occurred across a wide range of sectors,” as
manufacturing payrolls rose 11,000 and construction jobs grew 2,000, and
there was “a little bit higher income growth.”

Total average hourly earnings did rise six cents to $23.50 and is
up 2% year over year, while aggregate hours worked rise 0.4% over the
month.

As Michael Englund of Action Economics pointed out, “The rest of
the report actually beat assumptions, with quite an overshoot for wages
and upward revisions the last two months, so we eliminated what might
have been seen as a weakening trend.”

–Josh Newell is a reporter with Need To Know News in Washington

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MAUDS$,MMUFE$]