The July jobs report beat estimates across the board, as occurred in June, with what is now a firm 255k payroll rise after 18k in upward prior revisions alongside a solid 16k goods employment rise, with a 0.5% hours-worked surge that included gains across the goods sector. We saw a solid 0.3% rise in hourly earnings that preserved the cycle-high 2.6% y/y gain, and robust household survey increases of 420k for civilian jobs and 407k for the labor force that allowed a 4.88% jobless rate and a rise in the participation rate to 62.8%. The data boosted our other July forecasts, and suggest upside risk for our 2.6% Q3 GDP forecast.
For the U.S. jobs data impact on other July reports, we expect a firm 0.4% personal income rise after gains of 0.2% in both May and June. We expect Q3 growth of 3.6% for both total and disposable income, after slower respective recent growth rates of 2.9% and 3.1% in Q2, and 1.4% and 2.5% in Q1. Industrial production is poised for a flat July figure after a 0.6% vehicle and utility-led surge in June that marked only the fifth monthly rise since December of 2014. We saw hours-worked gains of 0.1% for factories and 0.2% for mining. We expect a 2% utility rise after a 2.4% June bounce thanks to hot weather. We expect a further small vehicle assembly rate rise after the June bounce to a 12.5 mln clip from an 11.4 mln rate in May. We expect a 1% industrial production growth rate in Q3, following a 1.0% contraction rate in Q2 that marked the fifth decline in the last six quarters. For construction, hours-worked rose 0.2% in July with a 14k construction payroll increase, and we expect a 0.5% July construction spending rise after three consecutive declines through Q2.
Fed Policy Outlook: The unambiguously strong jobs report keeps a hike in play this year, though mostly likely not until year end. There are still too many uncertainties globally and domestically to move the FOMC off the sidelines next month and implied Fed funds futures are only suggesting about 25% chance of a hike at the Septmeber 20, 21 policy meeting. Chances for a tightening at the November 1, 2 meeting are also limited given the November 8 elections. But the probability the Fed gets back on the normalization path in December is nearly 50-50. We suspect there are several on the Committee who want to pull the trigger again this year, if only for credibility’s sake. Growth should pick up to the 2.5% area over the second half of the year, while annual inflation should firm.
GBPUSD 1.3035, EURUSD 1.1060, USDJPY 101.68 and USDCAD 1.3176 (closing out our entry from yesterday).
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