US labour market: A solid overall performance in the first half of the year, but little wage pressure

The latest Labor Market Report shows that job creation has not come to a halt in the USA. A surprisingly weak previous month had stoked some very bearish speculation about the US economy. In fact, however, the number of registered employed increased in June by 224,000. In industry, too, 17,000 new jobs were created although in the meantime the smouldering trade dispute is visibly souring the business climate.

The fact that average monthly job creation was “only” 172 k in the first half of the year and thus visibly below its level in the year-earlier period should not be taken as a warning signal because, on the one hand, population growth requires an increase of only 100 k employed persons and, on the other, in 2018 the reduction of corporate tax had created an additional thrust for job creation. A further explanation for the fact that the jobs motor is running somewhat more slowly is the historically low unemployment rate as a result of which qualified workers are hard to find. The recent slight increase from 3.6 to 3.7 per cent is also due to significant additions to the labour supply.

Nevertheless, the labour market’s overall performance in the first half of the year should not lead to the conclusion that “everything is just fine.” After all, the surprisingly strong job creation in the public sector and in the construction industry in the month under review should probably be viewed as a one-off effect. The fact that wage growth has also slowed again recently after a slight – obviously only temporary – acceleration at the beginning of the year, is dampening optimism about the US economy.

According to the figures that are currently available, the US economy probably grew at an annualized rate of only around 1.5 per cent in the second quarter. Not only industry, but in the meantime the service sector, too, is suffering from the ongoing tariff dispute with China. This is documented by the falling sentiment survey figures. On the one hand, cost pressure has increased due to the existing tariffs and, on the other hand, there is a considerable risk that tariffs will also be imposed on remaining imported goods from China virtually “overnight.” Ultimately, investing activities and thus also job creation will probably suffer from this in the next few months. The Fed governors are likely to keep a very close eye on all this, but they are also likely to avoid taking any hasty measures.

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