Analysts at RBC Capital Markets point out that the slowdown reflects more a supply issue of a diminishing pool of available skilled workers rather than an indication of slackening demand by businesses.
Key Quotes:
“July payroll employment gains slowed to 157k after upwardly revised increases the previous two months of 248k (213k previously) and 268k (244k).”
“The separate, and more volatile, household survey indicated a stronger employment gain in July of 389k which, in conjunction with a more modest 105k gain in the labour force, lowered the unemployment rate to 3.9% after unexpectedly rising 0.2% in June to 4.0%.”
“With labour markets at capacity, the slowing reflects more a supply issue of a diminishing pool of available skilled workers rather than an indication of slackening demand by businesses. Confirmation of tightening labour markets was conveyed in today’s report by the July unemployment rate dropping back down to 3.9% after unexpectedly jumping 0.2 percentage points in June to 4.0%.”
“The Fed is likely to view today’s employment report as reinforcing its statement following Wednesday’s policy meeting that labour markets remain strong. Though the central bank opted to leave the fed funds range unchanged at 1.75% to 2.00%, it also indicated that further gradual increases in official rates will be required going forward to insure that inflation remains close to its 2% objective.”
“Our expectation is that gradual tightening will imply 25 basis point-hikes each quarter through the end of next year with the fed funds range eventually rising to 3.25% to 3.50%.”
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