Overseas Headlines – September 7, 2018

Date: September 7, 2018

United States:

U.S. Payrolls Rise 201,000 While Wage Gains Accelerate to 2.9%

U.S. job gains rebounded by more than forecast in August and wages unexpectedly registered their biggest advance of the expansion, keeping the Federal Reserve on track to lift interest rates this month and possibly another time this year. Nonfarm payrolls rose 201,000 after a downwardly revised 147,000 advance, a Labor Department report showed Friday. The median estimate of analysts surveyed by Bloomberg called for a gain of 190,000 jobs. Average hourly earnings increased 2.9 percent from a year earlier while the jobless rate was unchanged at 3.9 percent, still near the lowest since the 1960s. Robust hiring and lower taxes have boosted consumer spending and kept the job market near full employment, giving the Fed the go- ahead on raising rates this month. While investors have seen fewer hikes than policy makers are expecting through the end of 2019 — amid an escalating trade war, turmoil in emerging markets and the risk of a yield-curve inversion — the latest wage figures could narrow the gap in the outlook between the Fed and markets. “The labor market is still super tight,” Jennifer Lee, senior economist at BMO Capital Markets, said before the report. Here are the highlights of the three most closely-watched components of the report: payrolls, wages and unemployment. Revisions subtracted a total of 50,000 jobs from payrolls in the previous two months, according to the figures, resulting in a three-month average of 185,000. The details across industries showed manufacturing payrolls fell by 3,000 in August, breaking an almost yearlong streak of solid gains and missing the median estimate for a 23,000 increase. Construction added 23,000 jobs. Service providers increased payrolls by 178,000 workers, a three-month high. Gains were led by education and health services at 53,000 jobs, professional and business services with 53,000 and wholesale trade at 22,400. Government payrolls decreased by 3,000. Private employment rose by 204,000, compared with a median estimate of 194,000. The payroll gain ends a seven-year streak where the first reading for August has been below the median analyst estimate. The August figure has been revised upward in six of the past seven years.


What Economists Are Saying Ahead of the August U.S. Jobs Report

America’s labor market continues to run hot, even if wages remain cool. Economic data point to a positive feedback loop, boosted by tax cuts, that’s kept hiring strong: consumers are more optimistic and spending more on goods and services, and thus propelling companies and factories to add more people to cope with increased demand. It’s kept the Federal Reserve on a path of gradual interest-rate hikes. The question is how long employers can sustain the current pace of hiring as the pool of workers shrinks and risks litter the road ahead, including emerging-market turmoil and a widening trade war. Here’s what some economists expect from the August jobs report, from low to high estimates on non-farm payrolls. The median projections are for a job gain of 191,000 and a drop in the unemployment rate to 3.8 percent.  “Despite a rising pace of inflation, a looming trade war that threatens to slow U.S. exports, and tightening monetary policy by Fed policy makers, hiring by employers today shows little sign of slowing,” Andrew Chamberlain, chief economist at the job-search and company-review website, said in an email. “All signs today point to an August jobs report that’s likely to bring more good news for American workers.” Economists Carl Riccadonna, Yelena Shulyatyeva and Tim Mahedy noted that the first reading of August payrolls “has fallen short of both the consensus estimate and the prevailing trend with impressive consistency for much of the current economic cycle.” “Analysts should beware of an August mirage in payroll weakness,” they wrote. “The optics will be particularly jarring on the heels of a below-trend July reading. While it may prove tempting to connect the two months as a signal of deteriorating labor-market conditions, Bloomberg Economics does not subscribe to such a view.”



Euro-Area Economy Gets Boost From Investment, Consumer Spending

Consumer spending and business investment kept the euro-area economy humming along in the second quarter, with the wheels greased by the European Central Bank’s ultra-loose monetary policy. Capital spending added 0.3 point percentage points to GDP in the period, helping to offset a negative drag from net trade. There was also support from households, government spending and inventories. Overall, growth in the 19-country bloc clocked in at 0.4 percent during the period, matching an previous estimate from statistics office Eurostat. Having experienced its fastest growth in a decade in 2017, the euro-area economy has lost some momentum so far this year. It may weaken further amid global trade dispute, rising protectionism and knock-on effects from political instability in places ranging from Turkey to Italy. The ECB’s record-low interest rates and asset purchases have given additional help the economy by fostering spending and employment gains. But that support will soon change, with policy makers planning to begin winding down parts of their stimulus from next month. In the meantime, a full-blown trade war could negatively affect business sentiment and thereby stifle investment. Carmakers including Volkswagen, Daimler and BMW have warned about the fallout. In what could signal the state of affairs deteriorating, President Donald Trump told Bloomberg last week the European Union, with which the U.S. has agreed a truce on countervailing duties, was “almost as bad as China, just smaller.”



Too Many Zeros in Indonesia’s Currency May Be Adding to Panic

Indonesia’s stalled campaign to remove some of the zeros from its currency has added to the panic every time the rupiah weakens, according to PT Bahana Sekuritas. The nation’s parliament has so far this year failed to discuss a long pending bill on rupiah redenomination, which will allow dropping three digits from the currency as sought by Bank Indonesia. A parliamentary approval would have put the the country on an 11-year transition period. “We believe this played a part behind the unnecessary panic every time the rupiah weakened, or when it hovered near psychological levels versus the dollar like 15,000 that was last reached in 1998,” economists Satria Sambijantoro and Ananka said in a note Thursday. Indonesia’s currency is trading near the 15,000 level that was last reached during the Asian financial crisis two decades ago. It is among the worst performers in Asia this year, losing almost 9 percent against the dollar.