US Job Growth Continues
The US added 209,000 jobs in July, pushing the unemployment rate lower to 4.3%. The rate of growth was more than expected and above the rate in June. However, the monthly rate has been helped significantly by an increase in bar and restaurant employment, potentially perceived as lower quality jobs. Nevertheless, the dollar jumped on the news, as the prospects of interest rate rises by the Federal Reserve increased. The month on month figures are volatile, however the trend remains firmly positive. Job growth has so far been unaffected by the tighter labour market, although there has also been a disappointing lack of wage appreciation as a result. Accelerating wage growth is a sign of an overheating economy and will be a strong trigger for the Federal Reserve to speed up their monetary tightening process.
The Bank of England monetary policy committee announced no change to interest rates last week, keeping the base rate at the historically low 0.25%. The committee voted 6-2 to maintain the current rate. While there have been some speculation that an interest rate rise will happen in the near future, there will need to be a significant change in the data coming from the UK economy to change the opinions of enough of the current members. The Bank remains cautious as the squeeze on households’ real incomes continues to weigh on consumption and political risk lingers.
The Manufacturing Purchasing Managers Index (PMI) from the UK indicated that the sector has accelerated, following a disappointing performance in the second quarter. The three-month average PMI readings indicate a 1% quarterly growth rate. The survey also indicated that demand from overseas was increasing and cost pressures reducing. Of the firms surveyed, 50% anticipated higher production in one year against just 5% expecting it to be lower. This optimism has fed through to hiring intentions. Strong growth in the manufacturing sector could help offset a slowdown in consumer led growth as well beginning to rebalance the economy.
|UK 10 Year Gilt Yield||1.22||1.18||-0.04||-3.28%|
The UK trade balance will be announced on Thursday followed by French, German and US inflation data on Friday.