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Fast Comment USUnderlying employment growth strong; continued moderate wage growth

  1. Underlying employment growth strong
  2. Continued moderate wage growth
  3. Strong labour market will keep the Fed hiking
Underlying employment growth strong
Total nonfarm payroll employment increased by 157,000 in July, somewhat softer than the consensus expectation of 193,000. However, including the +57,000 revision of the previous two months, the level of employment was basically in line. The modest gain in employment in July, which follows the better-than-expected 248,000 gain in June, is a good illustration of the inherent volatility in the nonfarm payroll data. Looking through that volatility, however, the underlying pace of employment growth of over 200,000 per month at this late stage of the cycle is impressive and well above the growth rate necessary to keep up with population growth. There is nothing to suggest any significant deceleration in US employment growth at the moment. Employment growth at the current pace is likely to fuel a further decline in unemployment. Unemployment edged down to 3.9 % in July from 4.0 % in June.
Continued moderate wage growth
The average hourly earnings are still in focus for the Fed. Although wage growth has been trending upward, the pace has been slow. In July, wage growth was 0.3 percent m-o-m, which left the y-o-y rate at 2.7%. However, we expect earnings to rise further ahead, driven by the strong labour market.
Strong labour market will keep the Fed hiking
Overall, underlying employment growth is strong and we expect that the resulting tightening in labour market conditions will contribute to a gradual pick-up in wage pressure. Also, inflation has increased and the core PCE inflation rate has moved close to 2 percent. In that environment, we expect the Fed to hike rates two more times this year.


Disclaimer
Anders Bergvall

Anders Bergvall

Senior Economist

Thematic analysis and USA

anbe83@handelsbanken.se

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