Hopes of ‘soft landing’ as US jobs growth slows; UK economy caught ‘in low-growth trap’ – as it happened

Time to recap.

Economists are hopeful that the US economy is on track for a soft landing, after US employers added 187,000 jobs in July, less than expected.

July’s jobs report is a sign that the labor market is cooling after a series of interest rate hikes by the Federal Reserve have driven rates to their highest level in 22 years.

July’s gains were just 2,000 more than the jobs added in June. The BLS revised June’s job gain down to 185,000, a cut of 24,000 jobs. It also cut May’s jobs number. Together, June and July represent the two weakest monthly gains in two and a half years.

Here’s the full story:

In the UK, there are fears the economy is caught in a ‘low growth trap’, after the Bank of England cut its GDP forecasts yesterday and hiked interest rates to a 15-year high.

UK car sales have risen for 12 months in a row….but rising interest rates have been blamed for another fall in housebuilding.

Shipping giant AP Møller-Maersk has warned of a longer and deeper contraction of global trade than previously expected.

Inflationary pressures in the food sector are on the rise, with the UN reporting that global food commodity prices rose in July.

Revolut is shutting down its crypto trading operations in the US amid a regulatory crackdown.

Britain’s stock market has closed higher tonight, with the FTSE 100 index gaining 35 points or 0.5% to 7564 points.

Here’s Tiffany Wilding, Pimco’s managing director and economist, on today’s US jobs report:

1. What Happened?

June’s U.S. Jobs report showed that 187,000 jobs were added to the economy, but downward revisions (-49k) from prior months and contracting aggregate hours (-0.1% month-over-month) confirmed the labor market is continuing to decelerate. The labor market still looks very resilient, with the unemployment rate ticking back to record lows at 3.5%, strong household employment gains, and the 3 month moving average (3mma) pace of payrolls at 218k.

2. What Does It Mean?

The last two reports have highlighted growing layoffs in several of the weaker sectors we’ve been monitoring. This, plus notable slowing in leisure and professional services payroll gains, has kept the headline number on top of a trend towards 0 payroll growth by year end. Meanwhile resilience in average hourly earnings was boosted by calendar effects, but the 4.9% 3-month annualized pace underscores the Fed’s complicated job as wage inflation lags price inflation.

3 What Is Next?

Overall this report doesn’t really change our thinking – the labor market is slowly decelerating, but we think a sharper slowdown is still ultimately necessary to keep inflation from reaccelerating next year. For the Fed, this report has to be a relief, but likely doesn’t tilt the scales one way or the other. At the last press conference, Chair Powell, suggested that the committee might hike or it might not at its September meeting. Next week’s inflation report, which we expect will continue to show more moderate inflationary trends, may be more convincing, and push the Fed to be patient and watch how the economy evolves for another meeting

Revolut is shutting down its crypto trading operations in the US amid a regulatory crackdown.

The fintech firm said it had taken the “difficult decision” as a result of the “evolving regulatory environment and the uncertainties around the crypto market in the US.”

It follows a crackdown on crypto exchanges, by the Securities and Exchange Commission (SEC), which has accused industry giant Binance of a range of securities violations, including mishandling customer funds and misleading investors and regulators, and alleged Coinbase of skirting SEC rules by letting users trade crypto tokens that were actually unregistered securities.

Revolut said users will be blocked from buying cryptocurrencies from 2 September, and that access would be fully disabled by 3 October, meaning customers will no longer be able to buy, sell, or hold any cryptocurrencies after that date.

Revolut said in a statement:

“This decision has not been taken lightly, and we understand the disappointment this may cause. This suspension does not affect Revolut users outside of the US in any way, and impacts less than 1% of Revolut’s crypto customers globally.”

A spokesperson stressed that the decision would not affect customers in any other markets, including the UK, where Revolut has been registered as a crypto asset provider since September 2022.

The company – which has been waiting more than two years for a decision on its UK banking licence – said it would not disclose how much of its revenues rely on crypto services, but said in 2021 that they made up around 15-20% of its revenues.

The head of the Federal Reserve Bank of Atlanta has said US employment gains are slowing in an orderly manner.

President Raphael Bostic told Bloomberg Television’s Wall Street Week with David Westin that there is no need to hike rates further to ease inflation.

Bostic said:

“I expected the economy to slow down in a fairly orderly way, and this number — 187,000 — comes in continuing that pace,”

“I’m comfortable. I’m not expecting this to be over in a short period of time.”

Bostic also predicted that US interest rates could remain at their current restrictive levels well into next year.

He argued:

“We are today in a restrictive stance, and as inflation continues to fall, the degree to which it’s restrictive actually grows as that gap between the inflation rate and our interest rate widens.

So I think that will put enough constraint on the economy that it will continue to slow. But again, I’m not expecting this to be a two-month or a three-month period.”

Economics professor Justin Wolfers sees a soft landing in today’s jobs report:

Paul Ashworth, chief North America economist at Capital Economics, suggests the Fed shouldn’t be worried that US wage growth was steady last month, rather than slowing as expected:

The news that average hourly earnings growth increased by 0.4% m/m in July, and 4.4% over the past 12 months, might seem like a problem for the Fed. With productivity growth accelerating, however, it may not be.

Benjamin Trevis, economist at the CEBR thinktank, predicts we’ll see one more rise in US interest rates, even though job creation has slowed in the last two months.

Trevis explains:

“The number of US non-farm payrolls increased by 187,000 in July, marking a significant slowdown compared to the 312,000 average monthly job additions in the prior 12 months.

The latest data shows that the Federal Reserve’s tightening campaign is beginning to have the desired impact of slowing labour market activity. However, with unemployment still very low and wage growth above historical norms, there is still a way to go before the central bank can confirm an end to its tightening campaign.

Cebr expects one more 25 basis point rate hike by the central bank before the end of the year, which would bring the main interest rate to the target range of 5.50% – 5.75%.”

In essence there was something for everyone in this jobs report, says Michael Hewson of CMC Markets:

Weaker jobs growth, however an unemployment rate inching lower and wage growth robust.

Ultimately it speaks to a resilient US economy and a Fed likely Fed pause in September, ahead of next week’s CPI report.

Janet Mui, head of market analysis at RBC Brewin Dolphin, sees nothing indicaing a recession in today’s US jobs data.

US jobs report in July is still consistent with a strong labour market, despite lower-than-expected and the smallest monthly job gains since December 2020.

Job gains cooled with the Fed’s tightening campaign and a slower economy, but still decent at 187K in July. Weakness is contained in the manufacturing sector where payrolls dropped by 2K, reflective of the sector’s downturn and more cyclical nature.

Higher-than-expected wage growth of 4.4% YoY means compensation is outpacing inflation and a boost for workers.

Sonu Varghese, VP & global macro strategist at advisory firm Carson, has fired over some ineresting thoughts on today’s US jobs report:

• The jobs numbers this morning were just slightly below the expectations for a 200,000 increase, coming in an 187,000. At some point, job growth had to slow down and though many people will read this as the start of a recession, this is more likely just normalization of the economy as opposed to “softening.”

• Job growth recently has been driven by non-cyclical sectors, like health care, education, and government. These sectors had lagged in the original recovery but have accounted for more than 50% of job creation in 2023 as opposed to 25% in 2022. The cyclical sectors have been on the softer side this year, and this report points to more of the same.

• The unemployment rate fell a tick to 3.5% indicating that the labor market remains strong.

• Strong employment and strong wage growth means income growth is still strong, which is positive for consumption and the economy, as long as inflationary pressure remains muted.

Wall Street has opened a little higher, as traders assess whether today’s US jobs report could mean last week’s increase in US interest rates will be the last.

The Dow Jones industrial average, of 30 large US companies, has gained 0.4% or 136 points to 35,352.

The broader S&P 500 index is 0.5% higher, while the tech-focused Nasdaq Composite is 0.8% higher.

Ronald Temple, chief market strategist at Lazard, says:

“The case for ending the rate hike cycle got stronger with today’s job report.

Strong, but slowing, job growth suggests the Fed is navigating the tightening cycle well. With inflation down from over 9% to 3% and unemployment near a 54-year low, this is undoubtedly a positive report for the economy overall.”

Shares in Amazon have jumped 9%, after the ecommerce giant beat Wall Street forecasts last night with sales up 11% to $134.4bn in the last quarter.

The company reported a quarterly profit of $6.7bn, nearly double what analysts expected.

Today’s jobs report will not clear up the Fed’s dilemma about whether to stop raising interest rates, or not, says Seema Shah, chief global strategist at Principal Asset Management:

While the doves will be encouraged by the fall in job gains to below 200,000 for the first time since December 2020, the hawks will be focused on the fact that average hourly earnings are hotter than expected and that the unemployment rate seems steadfastly stuck around the 3.5-3.6% mark.

This jobs report is definitely not a gamechanger, Shah adds:

The Fed still has another report to come before their next meeting but, if no clear direction emerges, the Fed is likely to stay put.

Powell seems to need a very compelling reason to hike again so, with the hurdle so high, it would likely take a meaningful upside surprise to both job gains and wage growth to prompt Fed action in September.”

The dollar has weakened following today’s US jobs report, pushing the pound up by half a cent to $1.277.