U.S. June payrolls top expectations, wage growth looks on the moderate side

NEW YORK (Reuters) - U.S. job growth accelerated in June as companies, desperate to boost production and services amid booming demand, raised wages and offered incentives to draw millions of reluctant unemployed Americans back into the labor force.

Non farm payrolls increased by 850,000 jobs last month after rising 583,000 in May, the Labor Department said in its closely watched employment report on Friday. The unemployment rate rose to 5.9% from 5.8% in May.

MARKET REACTION:

STOCKS: S&P e-mini futures slightly extended gains and were up 0.27%, pointing to a higher open on Wall Street

BONDS: The yield on the benchmark 10-year note wavered and were last a tad lower at 1.436%. Two-year Treasury yields fell to 0.242%

FOREX: The dollar index turned 0.16% lower

COMMENTS:

DARRELL CRONK, CIO, WELLS FARGO WEALTH & INVESTMENT MANAGEMENT, NEW YORK

    "For capital markets, equities and bonds, this was a goldilocks report. It was strong enough but not too strong which is exactly what they wanted to see. If you got too strong a  report the market could've had a negative reaction saying that means the Fed can't wait two years to raise interest rates. There would've been concerns that pulls the Fed forward. This was perfect. There were enough jobs that you'd want to see but not so much that it concerns people that the Fed may have to act sooner."

    "Participation looks strong. Its unchanged month over month but there's good evidence people are returning.

   "The narrative there is we're seeing exactly what we were expecting, the services piece turning back on as the economy opens up. That's great news. That's exactly what we want at this stage of the recovery."

    "Wages were strong ... It's starting it's build. I don't think we've seen the high water mark yet in wage inflation pressure."

    "Up to this point its been largely industrials and goods sector that's been pushing the economy forward. Services has been turned off as retail, restaurants, travel haven't been where we've wanted them to be. As that turns back on, that will put pressure on wages."

    "We still have upward pressure that lies before us in wages. Beyond the headline jobs number, that's the first place my eyes go to, what's happening in wages?"  

TOM DI GALOMA, MANAGING DIRECTOR, SEAPORT GLOBAL HOLDINGS, NEW YORK

“The nonfarm payroll number beat fairly well, but the unemployment rate shot up a little bit, that has people baffled.”

“The (U.S. Treasury) market is kind of struggling to go to lower yields, because were already at somewhat lower levels before the data came out. The market popped but can’t seem to go lower than 1.42% right after the release (on yields on the 10-year note.)"

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“Most of the gains came from the restaurant industry and education. As educators came back to work in the fall you’ll see a real drop in the unemployment rate. I think we’re geared toward a fairly decent reopening but most of it will take place in the fall.”

VASSILI SEREBRIAKOV, FX STRATEGIST, UBS, NEW YORK

    "The FX market was gearing up for a stronger number all week and you saw that in the dollar's strength. I think the bar for a positive surprise was higher as a result. We initially reacted positively to the headline, which was stronger than expected. And then moved a little lower because of some of the weaker details of the report such as the higher unemployment rate and the higher bar for a positive surprise."

    "Overall, we're moving in the right direction. The U.S. labor market is strong. How quickly we can eliminate slack in the labor market remains to be seen. But our view at UBS is that there is more slack than what appears at first glance. We expect more people to join the labor force in the coming months and as a result, unemployment rate will fall slowly."

JJ KINAHAN, CHIEF MARKET STRATEGIST, TD AMERITRADE, CHICAGO

“It was definitely a very encouraging number overall."

"This definitely shows that the pace is very steady of opening things back up and that is what we want to see so that the wages aren’t too hot and some of the inflation fears get a little bit mitigated given the fact you look at the average hourly wage really isn’t up much both over month and over year. The fact we did have so many restaurant and bar jobs, even though we know those people are probably getting paid more than they were before all this, that is still a lower wage than construction, etc, which was flat once again this month.”

JOSEPH LAVORGNA, AMERICAS CHIEF ECONOMIST, NATIXIS, NEW YORK

“Big headline, the jobs market is recovering. There’s still a lot of slack, there’s just no wage pressure.

“The labor market is looking pretty good, it’s moving in the right direction. There’s still a lot more improvement that’s needed but left to its own devices at this point, the labor market and the broader economy are going to be fine.

“I would also argue that at the margin the data we got maybe makes a little less likely you’re going to get fiscal stimulus because people will focus mostly on the headline and why does the government need to do more if the things are getting better and you’re generating substantial job gains?”

PRIYA MISRA, HEAD OF GLOBAL RATES STRATEGY, TD SECURITIES, NEW YORK

“A better report should mean higher front-end rates (on U.S. Treasuries), but they didn’t last. I think the market is torn between whether to price in the market outlook or the Fed reaction.”

“If the data is better normally that should mean higher rates, but if the Fed is forced to exit faster that would slow down the economy.”

“It’s the interplay between the economic outlook and the Fed reaction function that is creating some weird dynamics.”

STEVE RICK, CHIEF ECONOMIST, CUNA MUTUAL GROUP, MADISON, WISCONSIN (email)