US jobs growth remains moderate in July, with strong wage gains.

US jobs growth remains moderate in July, with strong wage gains.

Moderate Job Growth in the U.S.: Solid Wage Gains and Decline in Unemployment Rate

The U.S. economy maintained a moderate pace of job growth in July, as reported by the Labor Department in its employment report. Although the numbers were slightly below expectations for the second consecutive month, there were still positive aspects to take note of. Nonfarm payrolls increased by 187,000 jobs, only slightly lower than the revised June figure of 185,000, which was originally reported as 209,000 jobs added.

The reaction to the news in the financial markets was generally positive. U.S. stock futures gained, the dollar index fell, and the yield on 10-year Treasury notes decreased. However, what do experts in the field think about the overall implications of these job numbers and their potential impact on the U.S. Federal Reserve’s decision-making process?

Signs of Labor Market Cooling, But It’s a Slow Process

Stuart Cole, Head Macro Analyst at Equiti Capital in London, suggests that the U.S. labor market is beginning to slow down. However, he points out that the situation is not all negative. Despite the slightly weaker job growth, wage gains remained solid, with an annual reading of 4.4%, well above the approximate level of 3.5% considered consistent with a 2% inflation target. Additionally, the overall unemployment rate unexpectedly fell to 3.5%.

Cole concludes that while the labor market is indeed showing signs of cooling, the process is happening gradually. He believes that these job numbers will not significantly alter the narrative of the Federal Reserve. However, the higher-than-expected earnings numbers might concern the “hawks” on the Federal Open Market Committee (FOMC), who might continue to advocate for another interest rate hike at the September meeting. The outcome of the Fed’s September meeting may ultimately hinge on next month’s employment report, especially if inflationary pressures are receding.

Contradictory Elements: Weakening Jobs Amidst Rising Wages

Alex Coffey, Senior Trading Strategist at TD Ameritrade in Chicago, reflects on the mixed signals present in the job numbers. While job growth was weakening, the wages component showed some strength. Coffey highlights that the market was already on shaky ground, compounded by poor earnings from Apple. Despite this, equities managed to hold firm in positive territory.

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Regarding the data revisions, Coffey notes that it was a modest miss compared to previous numbers. He suggests that the overall situation is indicating a slowdown, without the signs of overheating. However, with a slowing economy, concerns arise as to whether the Federal Reserve’s efforts to slow down inflation will be effective. Additionally, the fact that earnings are not slowing down but actually firming up may pose a challenge for the Fed.

Relieving Concerns of an Overheated Economy

Randy Frederick, Managing Director of Trading and Derivatives at Charles Schwab in Texas, expresses mild surprise at the employment numbers, expecting them to be higher based on previous data. However, Frederick sees this as having a net bullish impact on equity markets.

In Frederick’s view, the job numbers align with the market’s narrative of a soft landing, neither too soft nor too hot. The report should help alleviate concerns about the economy being too strong, which could have led to fears of another interest rate hike in September. He deems a rate hike highly unlikely for now.

Encouragement for the Fed’s Decision-Making

Peter Andersen, Founder of Andersen Capital Management in Boston, highlights the relief felt by investors upon seeing that the job numbers did not exceed expectations. He believes that the Federal Reserve will view the figures positively and hopes they will support the decision to halt further rate hikes in the future.

Wage Growth Outweighed by Tepid Aggregate Weekly Income

Brian Jacobsen, Chief Analyst at Annex Wealth Management in Wisconsin, points out that although wage growth may have been slightly higher than expected, the aggregate weekly income number was relatively tepid due to a shorter workweek. Jacobsen acknowledges that there are broader indicators of the labor market cooling, such as the ongoing struggles in the manufacturing sector. In his opinion, based on this report alone, the Federal Reserve does not have a strong case to justify further adjusting the federal funds rate.

In conclusion, the job growth in the U.S. during July may not have met expectations, but the solid wage gains and the decline in the unemployment rate provide some encouragement. However, concerns about the slowing labor market and the possible impact on inflation and the Federal Reserve’s decision-making loom ahead. With next month’s employment report expected to play a pivotal role, market participants eagerly await its release.

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