Employment data dips: is US growth moderating?
Quickview: We think the world economy is entering a soft patch, something backed up by the payroll numbers from the US.
The US added 157,000 jobs in July, slightly weaker than expected compared to a market consensus of 190,000. However, upward revisions to May and June added nearly 60,000 to the total, such that the three-month trend in payrolls remains robust at 224,000 per month.
Cutbacks in government meant that private payroll growth outpaced the headline with professional and business services, leisure and hospitality, and manufacturing being the leading sectors for job creation.
The unemployment rate dropped from 4% to 3.9% whilst average hourly earnings gained 0.3%, although this left the annual rate at 2.7% year-on-year due to downward revisions.
Weaker start to Q3?
Monthly employment figures are volatile and the weakness in July could be followed by a bounce-back in August, replicating the pattern seen earlier in the year.
However, whilst it is difficult to draw strong conclusions from one month’s figures, the dip in payrolls did contribute to a decline in total hours worked last month, which suggests that the US economy did not get off to a strong start in the third quarter.
Either that, or, faced with skill shortages, firms are raising worker productivity, although if this were the case we would probably see stronger wage growth.
US growth is moderating
We raise the question of a dip in growth as this report follows the ISM manufacturing and non-manufacturing surveys, which were both softer than expected, and a downward revision to the PMI index. Both surveys are at high levels, but reinforce the point that growth is moderating in the US.
Trade figures released last week also showed a dip in exports and a pick-up in imports in June, indicating that the trade sector’s robust contribution to activity in Q2 was waning by the end of the quarter. With tariffs being applied in July between the US and China, these figures will be closely watched for signs of export weakness.
Last week’s job figures do not alter our view that the world economy is entering a soft patch.
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