Following a dose of disappointing economic data out of the US with the most recent involving ISM non-manufacturing PMI released yesterday, the highly anticipated non-farm payrolls for the month of July took markets by surprise with the figures beating expectations. Consequently, the dollar surged and managed to break above the key level of 93 despite ongoing political turmoil around Trump’s administration.
In July, 209,000 new positions were created in nonfarm sectors, a number that was below the previous mark of 231,000 which was upwardly revised from the initial estimate of 222,000. Nevertheless, this was a surprise to analysts who instead expected non-farm payrolls to rise by only 183,000. Among industries, food and drinking services experienced the highest employment expansion during the month, adding 53,000 workers while the last 12 months the industry added a total of 313,000 jobs. Professional and business services came second, providing 49,000 new positions in July.
The unemployment rate slipped as expected to 4.3%, from 4.4% observed last month, maintaining a 16-year-low level, whereas the U6 rate version which involves all unemployment people plus discouraged job seekers and part-time workers remained flat at 8.6%, close to 9 ½ year-low reached in May. The participation rate rose by 0.1 percentage points to 62.9%.
Regarding wage growth, monthly earnings were up by nine cents or 0.3% on average compared to 0.2% in June, recording the highest increase in five months. On a yearly basis, average earnings grew flat at 2.5% for the fourth consecutive month. Month-on-month, average working hours remained unchanged at 34.5 hours per week.
With an economy operating at full capacity and wage growth showing signs of improvement, the odds for an additional rate hike this year are increasing as higher disposable income would likely raise consumer spending and therefore drive the already subdued inflation towards the target rate. Nevertheless, more evidence on labour market will be reported before the next FOMC policy meeting, while the cloud around the Trump’s administration is getting darker day by day.
Looking at the reaction in the forex markets, the greenback shot above the 93-key level against a basket of major currencies, jumping by almost 1% from 92.62 to 93.61. Dollar/yen picked by approximately 1% to reach a one-week high of 111.04, while euro/dollar sank by 1.20% to a four-day low of 1.1727. Pound/dollar dropped to a nine-day low of 1.3031.
