I’m always surprised when I read reports on US jobs figures. The consensus is that somehow the 162,000 jobs that were created in July is soft or a weak figure – tepid, even. This, quite simply, is not true. The report taken in its totality shows a further decent improvement in the labour market.
For a start, the unemployment rate fell to 7.4 per cent from 7.6 per cent. Recall that this is calculated from a different survey to the payroll figures. In this survey jobs rose by 230,000 but there was also a drop in the participation rate – not necessarily a bad sign, mind you. Otherwise earnings and hours worked were pretty much unchanged, with a trivially small fall in hours worked.
The general picture is that jobs growth remains strong in the US, which is consistent with other indicators showing robust growth in private demand. The US economy is in good shape. Having said that, the ongoing negative emphasis on ‘slow’ jobs growth will make it easier for the Fed to delay a tapering and I think they will. Recall that the Fed expanded QE in the face of a strong acceleration in economic activity, and so the targets for its unwinding are not economic – they’re political. With that in mind, ‘soft’ growth, ‘low’ inflation and ‘tepid’ jobs growth make it highly unlikely QE will be tapered in September. December is still a chance, but there is a high probability. And this, I suspect, should be the working assumption unless data is very strong – that a December tapering gets pushed into 2014.
The market reaction to that data was relatively mute and so US equities were flat-ish – the Dow and S&P500 up 0.2 per cent, although the Nasdaq was up 0.4 per cent. In Europe, moves were small and mixed around zero, although the FTSE100 fell 0.5 per cent.
Not really a lot otherwise to speak of – the Australian dollar is pretty much unchanged at 0.8924, so it should be a quiet day for the market today unless retail sales (out at 1130 AEST) pump out a large number either side of zero. Recall this indicator is next to useless – but it does get press. For the monthly number, the consensus is that sales rose 0.4 per cent while on a quarterly basis a fall of -0.1 per cent is expected.
Now, recall that if we do get that fall, that means that 1.5 years after the Reserve Bank started cutting rates that consumer spending has declined. That’s not how it’s is supposed to work, and even the most fanatical rate cut nut would have to acknowledge the strategy has failed. But people are dense – look how long it took the ALP to realise that Julia Gillard was not popular and that getting rid of Rudd was a monumental stuff-up. Years.
Anyway, spending should be stronger when there are no structural headwinds to growth. That it’s not comes down to one thing and one thing only. As I’ve argued for a long time, only confidence is the issue, and this idea is gaining much more traction lately – thankfully. The Reserve Bank governor has spoken on it twice now. However, opinions vary as to the cause of it and what should be done. Rate cut nuts argue – and really I think this is quite idiotic – that we need still lower rates, and there were plenty of business groups over the weekend demanding more.
So the odds of a rate cut this Tuesday (1430 AEST) are very high then, and the surprise will be if we don’t get one. Some are talking of 50 bps! Where do we stop? Well, policy makers and some business leaders are hysterical at the moment so I can’t see an end to it at this point. It’s a question of when the stupidity stops – and that’s anyone's guess. Could the election bring about a much needed lift in confidence? I suspect so, if it delivers some certainty, but it’s hard to know for sure and much will depend on the actions the government takes.
Outside of that there is a smattering of data: TD Securities’ inflation gauge today, the Australian Bureau of Statistics house price series on Tuesday 1130 AEST for the June quarter and the trade balance at the same time. Then on Wednesday we get home loans and on Thursday employment numbers. The consensus is that 6000 jobs were created and the unemployment rate is expected to rise to 5.8 per cent.
Globally, the key focus will be the Chinese numbers out this week: trade, inflation, industrial production etc. In terms of US data, there are a few bits, nothing major though: the non-manufacturing ISM, consumer credit and of course the weekly jobless claims numbers.
That’s about the lot, have a great week.
Adam Carr is a leading market economist.
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