US: NFP in focus this week - BBH

In the US, the August jobs report, the day after the Eurozone’s CPI, will be the main talking point, according to analysts at BBH.  

Key Quotes

“The headline non-farm payroll number that is typically the focus is less important now, barring a significant surprise.  Jobs growth has been notable steady.  In 2016, the US created 187k jobs a month on average.  This year the average is 184k.  In the past three months, US job growth accelerated a bit (average 195k), and a reversion to the mean, which is what the median forecast anticipates (180k) is neither here nor there.  The point is that job growth remains impressive given the maturity of the business cycle.”

“The unemployment rate returned to the cyclical low of 4.3% in July, and likely remained there in August.  The underemployment rate (U6) has become of greater interest in this cycle than in previous cycles.  It has fallen to 8.6% from 9.2% at the end of last year and 9.7% last July.  There is scope for additional improvement.  It averaged 8.2% in 2006.”

“Earnings growth has also commanded more attention as a measure of the tightness of the labor market, potential pressure on prices, and an indicator of the fuel for effective demand.  Average hourly earnings growth has also been remarkably steady. Although it stood at 2.5% year-over-year in July, the three-, 12- and 24-month averages stand at 2.6%.  A rise to 2.6% in August as the median forecast expects is better than a decline but tells investors little new about the economy.”  

“Given the importance of prices for the Fed's reaction function, the core PCE deflator that is reported the day before the employment data has potential to impact the interest rates and the dollar.  The risk is that the core PCE deflator, which the FOMC targets, slipped to 1.4% from 1.5%.  This would be the lowest since the end of 2015.  Some would see it as reducing the chances for another rate hike before the end of the year.”