Resilient US labour market overshadowed by trade worries

Another set of strong US employment reports continues to underpin resilient domestic consumer spending, despite global uncertainties. July nonfarm payrolls were up by 164,000, following a downwardly revised 193,000 gain in June, in line with estimates.

The three-month average of job creation was down to 140,000, the slowest in almost two years, though we think this is more related to tighter labour supply instead of a problem with demand. The unemployment rate remained steady at 3.7% while wage growth picked up to +3.2% year-on-year (y/y).

What do the labour figures tell us?

Today’s labour market report is not too hot, nor too cold. It offers more confirmation of the current trend, which is continual solid employment gains, decent wage growth and near half-a-century low unemployment rate.

It does show that the US labour market has been rather unaffected by the ongoing trade tensions. Surprisingly, manufacturing added the most jobs in six months. Aggregate weekly earnings growth, which is highly correlated with retail sales growth, slowed from +4.6% y/y to +4.4% but is still consistent with strong spending.

Today’s report should in theory help ease rate cut expectations post Fed Chair Powell’s press conference on Wednesday.

How do the latest tariffs impact the outlook?

However, yesterday’s tweet from President Trump, announcing plans to impose 10% tariffs on $300 billion of Chinese imports, will overshadow the strong labour market data.

The US job market is so far resilient but the latest round of tariffs may further hurt corporate sentiment and thus hiring decisions. Assuming the additional tariffs go ahead on 1 September and China retaliates, we think the Fed will cut rates again in its September meeting.