US: Good jobs report offers clear positives for the Fed - ING

James Knightley, Chief international Economist at ING, explains that strong payrolls growth, falling unemployment and firmer wage growth are good news and with PPI and CPI set to bounce next week we could see growing support within the Fed for additional rate hikes.

Key Quotes

“The US labour report shows payrolls rose 209, 000 in July versus expectations of a 180k gain. The net revisions were up 2,000 so a very good outcome given the economic environment. Unemployment fell to 4.3% from 4.4%, as expected, while underemployment remained at 8.6%. There was also good news from wages. They rose 0.3%MoM – the strongest increase since February – which kept the annual rate of growth at 2.5%.”

“This is a positive story, but one month of stronger wage growth is not going to sway the market in terms of its thinking for Fed policy. However, next week will see the release of the PPI and CPI reports and both look set to show an increase in inflation pressures. The market is currently looking for headline PPI to rise to 2.3% from 2% (core PPI to rise to 2.1% from 1.9%) while next Friday’s CPI report is predicted to rise to 1.8% from 1.6%.”

“This combination of stronger wage, producer and consumer price inflation could nudge the market into thinking that its pricing of only one rate rise over the next 18 months may be too cautious. With the activity backdrop looking reasonable and the economy adding jobs in significant numbers we are looking for a December Fed rate hike followed by two further moves next year.”