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US July non-farm payrolls beat expectations, temper calls for QE 3

Date: Friday 03 Aug 2012

Capitol Hill

-Non-farm payrolls rose by 163,000 (Consensus: 100,000).
-Household survey shows employment falling in last 3 months
-Average hourly earnings rise by 0.1% on month (Consensus:0.2%)
-Average work week remains at 34.5 hours
-Unemployment rate ticks up to 8.3%
-Manufacturing payrolls increase by 25,000 (Consensus: 10,000)



The United States has to still to recover half the jobs lost during the financial crisis, but there may be some new indications in today´s July employment report that certain progress has been made as the economy reinvents itself and attempts to rebalance.

Furthermore, for at least some economists today´s positive surprise may herald a small trend that could, at the least, see the Federal Reserve postpone any further round of quantitative easing past September. Nevertheless, market commentary in this respect is rather mixed.

Thus, including the July gain, the U.S. has recovered 4 million of the 8.8 million jobs lost as a result of the 18-month recession which ended in June 2009.

Following on from the above, if one looks at the so-called Establishment survey data –it differs from the Household in the methods used to collect the data- at least some of the drivers of the gain in non-farm payrolls have changed vis-à-vis what was the norm not too long ago. Gains in employment within the retail, government, construction and financial sectors were muted at best whereas manufacturing powered ahead (generating 25,000 jobs and ahead of the 10,000 foreseen).

One must be careful of not exaggerating the above, however, but there are some signs of it.

In any case, non-farm payrolls grew by 163,000 in July, whereas the consensus expectation was for an increase of 100,000, led by a gain of 172,000 in the private sector (Consensus: 110,000).

Yes, but will employment continue to rise?



At least for the short term that may yet happen, but the outcome seems to be finely balanced given the risks out of the Eurozone and the looming ‘fiscal cliff,’ amongst others.

In that regard, those who are inclined to be more pessimistic point to the Household survey data which shows the unemployment rising by a tenth of a percentage point to 8.3% (Consensus. 8.2%). Having said that, the aforementioned was in no mean part the result of rounding.

Furthermore, employment (in the Household data) has actually fallen by 65,000 in the last three months, although this was compensated for by an even larger reduction in the size of the civilian labour force.

With similar implications, average hourly earnings only rose by 0.1% month-on-month (1.7% year-on-year), instead of the 0.2% month-on-month expected.

What does the behavior of the length of the average work week (a useful leading indicator) tell us? It remained steady at 34.5 hours, so precious little. And the index of aggregate weekly hours? Up by a tenth, so kind of slow but little else, comment analysts at a Digital Look.

Temporary hiring on the other hand did edge up a tad, by 14,100; this is a small positive.

QE3 could be postponed



Back on the subject of further quantitative easing, Barclays Research is of the following opinion: “Bottom line: A stronger-than-expected report, despite the small increase in the unemployment rate, and one that should partially ease the concerns of policymakers. Job growth during Q2 (which averaged 73k per month) was not enough to bring down the unemployment rate, but consistently above-100k prints will be sufficient to do so, in our view.

“Therefore, in our judgment, a similar pace of employment growth in August, if it is combined with a modest improvement in activity data and broadly stable financial market conditions, would be sufficient for the Fed to hold off on a further round of balance sheet expansion in September.”

Where to now Congressmen?



And the fiscal cliff? Alan Krueger, chairman of the White House Council of Economic Advisers, used the report to renew the administration’s call for lawmakers to extend tax cuts for Americans earning less than $250,000 a year and act on Obama’s proposals for spending on infrastructure.

The jobs numbers show the economy is “continuing to heal from the very deep wounds” of the recession, Krueger said in a Bloomberg Television interview. Still, “the unemployment rate is too high.”

So, looking at the bright side of things, at least the European Central Bank -and those governments which are carrying out reforms- seems to have done something this time around.

AB

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