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The July NFP report showed the economy added 164.000 jobs, in line with expectations. According to analysts at Wells Fargo, overall the labor market is holding up, even if the pace of improvement is slowing.  

Key Quotes:  

“At its meeting earlier this week, the FOMC characterized the labor market as “strong” and the July payroll report did nothing to dissuade that view. Employers added 164K jobs in July, nearly spot on with expectations. Usually that would be a sufficient number of jobs to chip away at the unemployment rate, but the jobless rate remained at 3.7% as labor force participation edged up again.”

“Average hourly earnings rose 0.3%, improving the 12-month change to 3.2%. That pace remains within the range of the past year, where earnings growth looks likely to stay in the near term. The share of small businesses planning to raise compensation fell to nearly a two-year low in July. More tariffs may threaten wage growth by squeezing businesses’ costs.”

“Consumers are expected to do the heavy lifting for growth in the second half of the year as investment and trade are hampered by the ongoing trade war. Growth in labor income, however, suggests spending may moderate.”

The labor market is not the Fed’s primary concern at the moment. With wage growth showing few signs of sending inflation much above the current rate and trade-related uncertainty threatening to dent confidence, we still expect the FOMC will increase policy accommodation over the next few months.”