Hopes of ‘soft landing’ as US jobs growth slows; UK economy caught ‘in low-growth trap’ – business live | Business
US added 187,000 new jobs in July
Newsflash: The US economy added fewer new jobs than expected last month.
The US non-farm payroll rose by 187,000 in July, data just released shows, below forecasts of an increase of 200,000.
June’s NFP has been revised down too, from +209,000 to +185,000, while May’s has been cut by 25,000, from +306,000 to +281,000, meaning fewer jobs were created in the spring than we thought.
The U.S. Bureau of Labor Statistics has also reported that the unemployment rate fell to 3.5%, down from 3.6% in June.
They add:
Job gains occurred in health care, social assistance, financial activities, and wholesale trade.
Key events
Benjamin Trevis, economist at the CEBR thinktank, predicts we’ll see one more rise in US interest rates, even though job creation has slowed in the last two months.
Trevis explains:
“The number of US non-farm payrolls increased by 187,000 in July, marking a significant slowdown compared to the 312,000 average monthly job additions in the prior 12 months.
The latest data shows that the Federal Reserve’s tightening campaign is beginning to have the desired impact of slowing labour market activity. However, with unemployment still very low and wage growth above historical norms, there is still a way to go before the central bank can confirm an end to its tightening campaign.
Cebr expects one more 25 basis point rate hike by the central bank before the end of the year, which would bring the main interest rate to the target range of 5.50% – 5.75%.”
In essence there was something for everyone in this jobs report, says Michael Hewson of CMC Markets:
Weaker jobs growth, however an unemployment rate inching lower and wage growth robust.
Ultimately it speaks to a resilient US economy and a Fed likely Fed pause in September, ahead of next week’s CPI report.
Janet Mui, head of market analysis at RBC Brewin Dolphin, sees nothing indicaing a recession in today’s US jobs data.
US jobs report in July is still consistent with a strong labour market, despite lower-than-expected and the smallest monthly job gains since December 2020.
Job gains cooled with the Fed’s tightening campaign and a slower economy, but still decent at 187K in July. Weakness is contained in the manufacturing sector where payrolls dropped by 2K, reflective of the sector’s downturn and more cyclical nature.
Higher-than-expected wage growth of 4.4% YoY means compensation is outpacing inflation and a boost for workers.
The job market is not getting softer, yet, but it’s growing at a slower pace. Nonfarm payrolls rose 187K in July, slightly below consensus expectations and the second consecutive month below 200K, the first time that’s happened since the onset of COVID. In addition, payroll…
— Robert Stein (@BobStein_FT) August 4, 2023
Sonu Varghese, VP & global macro strategist at advisory firm Carson, has fired over some ineresting thoughts on today’s US jobs report:
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The jobs numbers this morning were just slightly below the expectations for a 200,000 increase, coming in an 187,000. At some point, job growth had to slow down and though many people will read this as the start of a recession, this is more likely just normalization of the economy as opposed to “softening.”
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Job growth recently has been driven by non-cyclical sectors, like health care, education, and government. These sectors had lagged in the original recovery but have accounted for more than 50% of job creation in 2023 as opposed to 25% in 2022. The cyclical sectors have been on the softer side this year, and this report points to more of the same.
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The unemployment rate fell a tick to 3.5% indicating that the labor market remains strong.
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Strong employment and strong wage growth means income growth is still strong, which is positive for consumption and the economy, as long as inflationary pressure remains muted.
Wall Street has opened a little higher, as traders assess whether today’s US jobs report could mean last week’s increase in US interest rates will be the last.
The Dow Jones industrial average, of 30 large US companies, has gained 0.4% or 136 points to 35,352.
The broader S&P 500 index is 0.5% higher, while the tech-focused Nasdaq Composite is 0.8% higher.
Ronald Temple, chief market strategist at Lazard, says:
“The case for ending the rate hike cycle got stronger with today’s job report.
Strong, but slowing, job growth suggests the Fed is navigating the tightening cycle well. With inflation down from over 9% to 3% and unemployment near a 54-year low, this is undoubtedly a positive report for the economy overall.”
Shares in Amazon have jumped 9%, after the ecommerce giant beat Wall Street forecasts last night with sales up 11% to $134.4bn in the last quarter.
The company reported a quarterly profit of $6.7bn, nearly double what analysts expected.
Today’s jobs report will not clear up the Fed’s dilemma about whether to stop raising interest rates, or not, says Seema Shah, chief global strategist at Principal Asset Management:
While the doves will be encouraged by the fall in job gains to below 200,000 for the first time since December 2020, the hawks will be focused on the fact that average hourly earnings are hotter than expected and that the unemployment rate seems steadfastly stuck around the 3.5-3.6% mark.
This jobs report is definitely not a gamechanger, Shah adds:
The Fed still has another report to come before their next meeting but, if no clear direction emerges, the Fed is likely to stay put.
Powell seems to need a very compelling reason to hike again so, with the hurdle so high, it would likely take a meaningful upside surprise to both job gains and wage growth to prompt Fed action in September.”
The dollar has weakened following today’s US jobs report, pushing the pound up by half a cent to $1.277.
US may achieve ‘soft landing’ as jobs growth cools
Some experts are hopeful that today’s jobs report suggests the US could achieve a “soft landing”, rather than tumbling into recession.
Michelle Cluver, portfolio strategist at Global X ETFs, says:
While significantly below the 312K average from the last 12 months, this reading still reflects a robust labor market that is adding almost double the number of jobs required to keep pace with population growth.
From a market perspective, this is encouraging for the Fed’s fight against inflation. This is the second consecutive month that NFP has come in below expectations, and the June reading was even revised downward to 185K.
This reduces the probability of the Fed needing further rate hikes this year. However, wage growth in the NFP report came in at 4.4%, above expectations.
David Henry, investment manager at Quilter Cheviot, is hopeful a recession can be avoided:
“While the labour market is slowly cooling as rate rises have some impact, at the moment there still seems to be enough momentum in the economy to avoid recession.
Whisper it, but the fabled ‘soft landing’ may just be achieved, although a lot can still happen before the Fed declares “job done”.
The economy’s robustness may mean that the Fed feels comfortable continuing to raise rates, but it has repeatedly stated that these decisions will remain dependant on the data and there are a number of data points due before the next meeting – not least next week’s inflation number.
A solid-enough jobs report to see us into summer…headline NFP just a rounding error away from consensus, though the -49k net revision does take off some of the shine…unemployment marginally lower, earnings growth stays strong…goldilocks-ish…
— Michael Brown (@MrMBrown) August 4, 2023
Today’s jobs report indicates the Fed’s aggressive actions to combat inflation are beginning to soften what has been a strong jobs market, says Stephen J. Rich, Chairman & CEO of Mutual of America Capital Management.
Rich explains:
Today’s softer jobs report could be viewed as a harbinger of slower economic growth and the equity markets typically do not like such negative numbers. Until now, the strong labor market has been a key area of strength, unaffected by the Fed’s interest rate policy. However, if weak job growth continues and unemployment escalates, talk of a recession is likely to grow louder again and the equity markets will likely give back some of their gains.”
“Despite wider signs of a possible economic slowdown, we expect the unemployment rate to remain low in the coming months and serve as reassurance for the Fed as they continue with their efforts to bring inflation down to their 2.0% target rate.”
Today’s US jobs report is “slightly weaker than expected”, says Richard Flynn, managing director at Charles Schwab UK:
Last month’s results offered evidence that employment growth had begun to slow, and today’s numbers indicate that a downward trend may be in motion.
While this should be encouraging for policymakers as they continue to battle sticky inflation, the Fed would likely prefer to see wage gains closer to 3%.
Growth in the 4% region may not be enough to convince bankers that monetary policy is working, so further interest rate hikes may be around the corner.”
US hourly earnings higher than expected
Pay growth in July was faster than expected, in a boost for US workers.
The jobs report shows that average hourly earnings for all employees on private nonfarm payrolls rose by 14 cents, or 0.4%, month-on-month in July to $33.74. Economists had expected a rise of 0.3%.
On an annual basis, average hourly earnings have increased by 4.4%, beating forecasts of a slowdown to 4.2%.
That might cause the Fed some concerns, as its policymakers ponder whether they have raised US interest rates high enough to drive out inflation.
Non-Farm Payrolls – Improvement in jobless rate = underlying strength.
Good for Stocks, should be +USD but traders dont see this as enough for Sept hike👎 NFP +187K vs 200K Forecast
👍 Unemployment Rate 3.5% vs. 3.6% Forecast
👍 Average Hourly Earnings 0.4% vs. 0.3% Forecast— Kathy Lien (@kathylienfx) August 4, 2023
At 187,000, July’s jobs gains are rather less than the average monthly gain of 312,000 over the prior 12 months.
That indicates that the Federal Reserve’s policy of raising US interest rates to cool the economy is having an effect.
US added 187,000 new jobs in July
Newsflash: The US economy added fewer new jobs than expected last month.
The US non-farm payroll rose by 187,000 in July, data just released shows, below forecasts of an increase of 200,000.
June’s NFP has been revised down too, from +209,000 to +185,000, while May’s has been cut by 25,000, from +306,000 to +281,000, meaning fewer jobs were created in the spring than we thought.
The U.S. Bureau of Labor Statistics has also reported that the unemployment rate fell to 3.5%, down from 3.6% in June.
They add:
Job gains occurred in health care, social assistance, financial activities, and wholesale trade.
Forecasting the monthly non-farm payroll changes is a tricky task, and economists have a range of views.
Estimates range from a 140,000 increase, which would be quite disappointing, to a cheerier 300,000 new jobs, according to estimates on Refinitiv.
#NFP | PREVIEW: July US Nonfarm Payrolls Expected To Fall To 200,000; Unemployment Rate To Hold Steady At 3.6%
Take A Look At What The Top Economists Are Forecasting In Today’s US Jobs Report: pic.twitter.com/70QQ8m6aG9
— TradeSignals24 (@TradeSignals_24) August 4, 2023
We’re about to find out who’s right….
US July jobs report coming up….
The financial markets are eagerly awaiting the latest US jobs report, due on the half-hour.
July’s Non-Farm Payroll is expected to show that the US economy added around 200,00 new jobs last month, slightly down on the 209,000 new hires recorded in June.
June’s jobs gain was the weakest since December 2020.
Economists will also be watching the latest pay figures, for signs that higher interest rates are cooling the labor market.
Hourly earnings are expected to slow to 4.2% year-on-year from 4.4% previously but continue to rise month-on-month. The unemployment rate is also expected to remain at a long-term low of 3.6%.
Analysts at FxPro point out that eleven out of the last twelve labour market reports have exceeded expectations – with last month’s being a rare miss.
They add:
A second worse-than-expected report in a row could crystallise the market pressure and become the first signal of a trend reversal.
The wage rate is also important for the dollar’s momentum: a better-than-expected reading is a reason for the Fed to tighten policy, which is positive for the dollar. Weak wage growth and strong employment can revive the appeal of risky assets to the detriment of the US dollar.
Happy Jobs Day!
The July US labour market report is due this lunchtime, with consensus expecting NFP to rise +200k on the month, a marginal slowdown from the +209k seen in June pic.twitter.com/ZnCuIde97p
— Pepperstone (@PepperstoneFX) August 4, 2023
