US: Slowing of jobs growth as the expansion matures? - BBH

Analysts at BBH point out that many economists had been braced for a slowing of US jobs growth as the expansion matures.  However, jobs growth in the first seven months averaged 184k, which is essentially the same as last year's average (187k), they further adds.

Key Quotes

“Over the past three months, jobs growth has averaged 195k, and some reversion to the mean is expected.  Barring a significant downside surprise, the focus will not be on the job creation itself.  The key is average hourly pay.  A 0.2% increase in August would lift the year-over-year pace to 2.6%, which is the 12- and 24-month average.  It may require a stronger increase to have a sustained impact.”

“Meanwhile, investors are trying to assess the likely impact of the Harvey storm on the larger US economy and policies.  Reports suggest that the lifting of the debt ceiling may added as an amendment to the relief package for Texas. The head of the conservative Liberty Caucus argued against doing so, but it is not clear if it can be blocked.  Nearly $6 bln of emergency aid is being considered, mostly for FEMA.”

“The Treasury's maneuvering around the debt ceiling included a movement of about $400 bln into the market earlier this year.  This seemed to break the shortage of dollars that had helped lift the greenback last year.  When the debt ceiling is lifted, those funds will again be drained, and we suspect, the net result could be positive for the dollar.”

“Today's employment report is unlikely to see much impact from the storm.  The survey had been conducted before it hit.  Next week's initial jobless claims will be among the first signs.  Given the impact of large storms in recent years, an 80k-100k increase in initial claims would not be surprising but then unwound in a few weeks.”

“Back-of-the-envelope calculations warn that Q3 GDP may be cut by 1 percentage point and Q4 by 0.5 percentage point before rebounding in 2018.  We do not think it impacts the Fed's decision to begin reducing its balance sheet.  We expect that announcement on Sept 20 to begin in Q4.  By the December meeting, the rebuilding will be underway, and we don't expect the GDP impact to prevent the Fed from hiking again.  We emphasize the continued strength of the labor market and the broader financial conditions, which have evolved in the opposite direction than the Fed sees fit.”