U.S. stock markets reacted positively to jobs growth and better than expected S&P 500 Q2 earnings reporting. July CPI inflation numbers will be reported Wednesday, August 10.
- The 528,000 jobs gains in July, along with a drop in the unemployment rate to 3.5% from 3.6% and rising wages, are a strong response to claims that the U.S. economy is in or on the brink of recession.
- The gains are more than double expectations and represent an acceleration over the past several months. They put employment back above its February 2020 pre-pandemic level.
- Gains were broad based and showed no signs that slowdowns in housing and manufacturing were bleeding through: construction jobs were up 32,000 and manufacturing were up 30,000. Biggest growth was in leisure and hospitality (96,000), professional and business services (89,000) and healthcare (70,000).
- Average hourly earnings rose 0.5% m/m and are up by 5.2% y/y. The principal disappointment was that the labor force declined by 63,000.
Focus this week will be on inflation, with July CPI reporting on Wednesday.
- With PCE price inflation for May and June being above expectations, July CPI will be an important factor in the Fed’s September decision on interest rates.
- The supply related problems driving inflation over the past year are improving. Deliveries from overseas are more on time and domestic production bottlenecks are declining.
- S. dollar strength makes U.S. imports less expensive and our exports less competitive, which helps focus more domestic production capacity on domestic needs.
- We will be looking for signs that the inflation outlook is becoming more challenging as a result of de-globalization, tighter labor markets and Covid legacy health care issues and protocols. If so, inflation may continue at a rate above 2% for some time to come.
What else are we watching? Q2 earnings, Treasury yield curve and leading economic indicators.
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