US jobs growth eased off in July compared with June. The latest US jobs figures released by the Bureau of Labor Statistics (BLS) show that total nonfarm payroll employment increased by 209,000 in July, against 231,000 the previous month.
The unemployment rate was little changed at 4.3% (against 4.4% in June). The BLS says the labour force participation rate, at 62.9%, changed little in July (it's up from 62.8%). That figure has shown little movement over the past year, it adds.
Over the past three months, job gains have averaged 195,000 per month. The employment-population ratio (60.2%) was also little changed in July but is up by 0.4 of a percentage point over the year.
Up in food, professional services and healthcare
Employment increased in food services and drinking places, professional and business services, and healthcare. The number employed part-time for economic reasons (involuntary part-time workers), at 5.3m, was essentially unchanged in July.
These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. The change in total nonfarm payroll employment for May was revised again.
It moved down from +152,000 to +145,000. The change for June was revised up from +222,000 to +231,000. With these revisions, employment gains in May and June combined were 2,000 more than previously reported.
ING predicts December interest rate rise
“This is a positive story, but one month of stronger wage growth is not going to sway the market in terms of its thinking for Fed policy,” said James Knightley, chief international economist at ING.
However, next week will see the release of the PPI and CPI reports and both look set to show an increase in inflation pressures, he adds. The market is currently looking for headline PPI to rise to 2.3% from 2% while next Friday’s CPI report is predicted to rise to 1.8% from 1.6%.
“This combination of stronger wage, producer and consumer price inflation could nudge the market into thinking that its pricing of only one rate rise over the next 18 months may be too cautious,” he says.
“With the activity backdrop looking reasonable and the economy adding jobs in significant numbers we are looking for a December Fed rate hike followed by two further moves next year.”
Stronger wage growth needed
Aberdeen Asset Management investment strategist Luke Bartholomew agrees but with a caveat: “This should keep the chances of a December rate rise alive. The next rate rise really boils down to whether inflation picks up and this requires stronger wage growth.
“While far from spectacular, especially given the further fall in unemployment, today’s wage numbers are just about enough for now. But there have been so many false dawns about US inflation over the last few years that no one should get too excited about today.”
Dollar the comeback kid
“The dollar ended the week as a comeback kid,” comments David Lamb, head of dealing at FEXCO Corporate Payments. “After days of weakness against most major currencies it has been energised by July’s near faultless jobs report.
“The markets’ conclusion has so far been broadly positive. The US economy is creating jobs at a decent rate, more Americans are returning to the workforce and those in work are seeing their paypackets crank up steadily.
Fed to carry on throttling back
“All of which implies that American consumers will continue to drive the economy forward and the Fed will carry on throttling back the monetary policy life support,” Lamb continues. But the timing of the next interest rate rise is still far from assured.”
“Dollar bulls are busy buying greenbacks in anticipation of a December hike, but this is no done deal. Today’s dollar rally is inevitable but not irreversible, and the road to the next rate hike is likely to be liberally sprinkled with banana skins.”
Balanced rather than breathless
Marcus Bullus, trading director of MB Capital, comments: “After seven straight record closes, the Dow’s reaction to Friday’s solid US jobs data has been balanced rather than breathless – with much of the cheerleading left to President Trump.
Details more important
But the details are arguably more important, he says. He sees the participation rate creeping up as more Americans return to work. And average wages continue their solid upward progress.
“With the July jobs report showing the US economy continues to power ahead, the factors most likely to derail the markets’ continuing run of confidence are now set to come from Washington rather than Wall Street,” he ends by saying.
Much to reassure
Sven Balzer, executive director at Coutts adds: “There’s much to be reassured by in this comprehensively strong jobs print. The headline figures are impressive, both on the job creation and unemployment rate fronts.”
An overall strong labour market report across the board balances out the somewhat weak ISM surveys released earlier this week, he observes. As the headline employment rate continues to fall, the Fed will very likely continue with its announced plan.
This will see balance sheet normalisation and a rate hike in 2017 despite the low inflation outlook. Hiring activity was broad-based across nearly all of the sectors of the US economy. Importantly wage growth also rebounded.
This saw the strongest monthly gain since February which puts wage inflation back on the radar. In summary the numbers should leave the FED confident to stick to its announced plan for balance sheet normalisation in September and a potential rate hike in December.
Keith Wade, chief economist at Schroders, says: “The US economy continues to generate jobs with 209,000 added to payrolls in July and the unemployment rate dropping back to 4.3%.
“Job gains were led by the service sector with the goods sector lagging behind, particularly construction. Average hourly earnings picked up a little to 0.3% month-on-month, but the year-on-year rate remains at 2.5%.
“The best indicator for wage growth is probably the ratio of employment-to-working population, which captures the effect of lower participation. This has been nudging higher, indicating better wage growth at some stage. Meanwhile though, stronger wages remain elusive.
Fed on hold
“Although this has to be seen as a robust report, we still see the Federal Reserve remaining on hold for the rest of rest of the year as inflation remains weak and balance sheet reduction induces caution.”