US labor market report, Global growth

US labor market report surprises markets

The US labor market data for June was better than expected. 224,000 new jobs were created, well above market expectations of 160,000. The unemployment rate rose slightly, from 3.6% to 3.7%. The market had expected this figure to remain unchanged. Growth in average hourly earnings, which rose by 3.1% y/y, remained marginally below the market estimate of 3.2% y/y. As expected, average weekly working hours remained unchanged from the previous month, at 34.4.

Today's data confirms that the weakness in the labor market in May was due to the environment and was not an indication of the onset of a sustained downturn. In May, the trade war with China had intensified and triggered a temporary sell-off on stock markets. With today's data, a rate cut at the end of the month has become less likely, and the markets should in turn react negatively. However, the issue is not off the table yet, as recent data from the manufacturing sector has once again been weak. Next week, Fed Chairman Jerome Powell will report to both chambers of the US Congress and will probably shape interest rate expectations. We continue not to expect any rate cuts in the US this year.

Global sentiment remains weak

The leading indicators for June released this week show that the global manufacturing sector remains under pressure. The current weakness is particularly pronounced in the capital goods sector, while the consumer goods sector is performing better. On the other hand, sentiment for global services improved slightly in June after a sharp slump in May.

The data shows how important the resumption of trade talks between the US and China on the fringes of the G20 summit is, particularly for global manufacturing (especially machinery and equipment manufacturers). Given the economic need (especially for China), we expect a gradual rapprochement on both sides in the second half of 2019, which should gradually brighten global growth prospects. In this context, next week's release of Eurozone industrial production data in May will be of interest. Industrial production in April was around 0.7% below the average for 1Q19 and thus far points to a slight decline in industrial production in 2Q19.

Download The Full Week Ahead