Morning Commentary: Jobs, Jobs, Jobs

Foreign Exchange - Morning Commentary
Jobs, Jobs, Jobs
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
July’s non-farm payroll jobs report delivered another surprise with payrolls growing by 1.76 million.  In total, ~42% of jobs lost during the pandemic have now been recovered.  The recovery in jobs has been led by rebounds in leisure & hospitality and retail trade.  These industries were two of the hardest hit sectors having posted impressive recoveries with retail trade seeing the highest recovery rate (62%) among the major industries. 

Thus far, the timing and magnitude of the jobs recovery has exceeded expectations with every jobs report since May beating consensus forecasts.  Despite this positive momentum, there remain concerns on the path forward as real-time high frequency data suggest a stalling of labor market conditions that gives downside risk to the August labor report.  Here is a summary of key high frequency data since the July jobs report. 
  • Initial jobless claims: Positive. Jobless claims have fallen to a post-pandemic low of 1.2 million.
  • Homebase: Negative.  The 7-day moving average of people working relative to the baseline has dropped to -23.4% from -22.4%. 
  • Kronos: Neutral. The relative change from pre-pandemic hourly time punches is unchanged.   

The pandemic disproportionately impacted the services side of the economy which is different from normal downturns that tend to hit the goods side.  The important question is whether or not the more resilient parts of the economy will remain or if they will eventually be dragged down.

To answer this, you can use the Bureau of Labor Statistics’ employment requirements matrix to derive the relationship between direct and indirect job gains/losses in one industry and the rest of the economy.  The good news is that leisure and hospitality is at the lower end of this relationship scale.  If you assume that direct and indirect job losses are concurrent, then this low relationship explains the bifurcation between job losses in the services sector and resilience in higher income industries.  The risk, of course, is that indirect job loss could come with a lag as businesses wait to see how things play out before responding to weak economic conditions.       
  • US stimulus talks remain stalled as White House officials look into other measures that can be done through executive order.  The need to explore additional avenues of support likely reflects fading odds of a congressional deal. 
  • Joe Biden has selected Senator Kamala Harris as his running mate.  The polling average for President Trump’s re-election currently sits around 45% and has been in flux.  Odds for the congressional outcome have been more stable with Democrats having an 80% chance of controlling the House and 40% chance of controlling the Senate.  As written in past commentaries, the composition of Congress will play a big role in policy regardless of who is in the White House. 
  • US CPI data beat expectations by rising 0.6% against expectations for a 0.3% increase. 
  • UK Q2 GDP dropped -20.4% QoQ with weakness broad-based.  It should be noted that these figures are backwards looking and do not represent the re-opening bounce.  While there have been significant increases in activity since the country re-opened, further BoE and government support is expected.
  • Eurozone industrial production rose 9.1% against expectations for a 10.0% increase. May’s industrial production number was also revised down by 0.1% to 12.3%.
  • The Reserve Bank of New Zealand kept its policy rate unchanged at 0.25% but boosted its asset purchase amount up to NZD100 billion from NZD 60 billion.  This increase was much larger than expected by the markets.  The bank also touched on tools available, including negative rates. 
  • China has requested TikTok and WeChat discussions be added to the agenda for trade talks with the US expected to be held this week.  Agricultural purchases and the yuan are other topics expected to be discussed. 
  • Due to technical issues, the currency charts are not available today.
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