The increase in non-farm employment (164k) in July was consistent with a strong economy. For sure, there were notable downward revisions to the previous two months (totalling 41k). Furthermore, the average monthly increase for 2019 so far (165k) marks a significant deceleration from last year’s average monthly gain of 223k.
Nevertheless, slowing population growth and an ageing population, offset only partially by the modest uptrend in the participation rate, imply that the labour market will continue to ‘tighten’, even with this more moderate increase in payrolls. The U6 unemployment rate fell again to 7.0% and is now within a whisker of the all-time low.
The market focus has understandably shifted back to President Trump and his battle with China to take US demands more seriously. The Fed has left the door open to further rate cuts in response to “global uncertainty”. President Trump has thrown down the gauntlet to China and the Fed, by escalating the trade fight. China may yet retaliate with a weaker Renminbi, which would accelerate the sell-off in equities and the decline in break-even inflation rates.
However, it is important not to lose sight of how strong the US economy has been this year, and what has been driving job creation: technology. Many of the tech-related sectors continue to post strong gains in payrolls, including computer systems design & related services and scientific research & development services.
