Please see the below article from Brooks Macdonald detailing the latest update and economic news from the US. Received 10/07/2023.
The number of new US jobs in June missed market expectations however wage inflation remains high
The headline miss in the US employment report on Friday was not taken as good news by equity markets who instead focused on some of the stickier labour market metrics. Equities closed lower on the day, with the US down just over 1% for the week and Europe underperforming, down a sizeable 3% over the same period.
The US employment report had positives and negatives for investors worried about labour market driven US inflation. The headline number of new jobs created in June came in below market expectations which is the first miss versus expectations in over a year. The unemployment rate grinded lower however, hitting 3.6% while the average number of hours worked in a week climbed versus expectations. The average hourly earnings also rose more than the market expected, coming in at 4.4% year-on-year. In aggregate, there may be some initial signs that labour market strength may soften in the coming months however the tick up in earnings and hours worked suggest that the inflationary wage pressures are still capable of fuelling consumption demand.
The market expects US headline CPI to fall dramatically on Wednesday but for core inflation to be sticky
This focus on inflation brings us to this week’s latest US CPI print which is released on Wednesday. The release comes amidst a series of US Federal Reserve (Fed) speakers so there will be a live commentary on the inflation results for the markets to consider. The headline US CPI reading is expected to plummet from 4% to 3.1% year-on-year while the US core CPI (excluding food and energy) is expected to fall more gradually, from 5.3% to 5%. The bond market, and Fed, will focus far more on this stickier core CPI target which remains well ahead of the central bank’s target range.
Falling consumer inflation expectations remain critical to avoiding an inflationary spiral
The Fed will be looking closely at the core CPI number when it is released however arguably consumers (and the media) are more likely to focus on the headline number. This is important as later in the week we see the University of Michigan release their consumer sentiment survey which includes inflation expectations. Should the headline US CPI continue to fall, this could quickly filter through to lower consumer inflation expectations which in turn may moderate wage growth demands.
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Alex Clare
11/07/2023