US employment left the door open for Fed action - RBS

Research Team at RBS, notes that the US July employment report was strong, leaving the door open for Fed action this year, more likely in December than September (that said, December is a long way off and for now we are not changing our call for no Fed action this year).

Key Quotes

“In July, payrolls advanced by 255,000 (private payrolls rose by 217,000). Net revisions over the prior two months totaled +18,000. Over the last three- and 12-months, payroll changes have averaged +190,000 and +204,000, respectively.

Healthy job gains were recorded across the board. On the goods-producing side, manufacturing employment increased by 9,000 on top of a 15,000 gain in June (the best two-month performance since the turn of the year). In the construction sector, employment advanced by 14,000, the largest gain in three months. Those advances were more than enough to offset another modest loss in mining (-7,000 in July). On the service-producing side, the employment advance was led by professional business services (+70,000, the largest increase since last June) and leisure and hospitality (+45,000, on top of a 52,000 advance in June). Healthy job gains were also seen in retail (+15,000), transportation (+12,000), finance activities (+18,000). Government payrolls advanced by 38,000, led by local education (+30,000). Since April, government payrolls have increased by 96,000, the largest three-month advance in six years.

On top of the stronger-than-expected payroll change, the workweek lengthened in July to 34.5 hours from 34.4 hours (the equivalent of adding another 300,000 jobs). Combining both the payroll rise with the increase in the workweek, the index of total hours worked (a proxy for real GDP) rose by 0.5%, the best result in a year. In July, that index is up 3.7% annualized versus its Q2 average.

Meanwhile, hourly earnings were up 0.3%. The year/year growth rate was unchanged at 2.6%.

Finally, in the household survey, the unemployment rate was unchanged at 4.9% (4.878% unrounded) but it held steady for the "right" reasons -- the labor force grew by 407,000, almost matching the increase in household employment of 420,000. The labor force participation rate ticked up from 62.7% to 62.8%. The employment-to-population ratio also edged back up from 59.6% to 59.7% after dipping in June. In July, increases were recorded in both the number of people working full-time (+306,000) and part-time (+150,000). Moreover, those working part-time involuntarily (i.e. because they could only find part-time work) fell by 81,000. The only slightly negative development was an uptick in the U-6 unemployment rate, from 9.6% to 9.7%.”