US: Industry gives a solid boost to employment, sentiment unimpressed by political risks

According to the latest official labour market report, non-farm payroll employment rose by 156,000 in August, so that employment momentum lags behind the two previous months, both of which were quite strong. As we see it, this is no great disappointment for the month of August, despite being adjusted for seasonal factors. Labour market figures very frequently tend to be weak in this holiday month and this August report also shows unusually low jobs growth in “education and health services”. The very positive news contained in the latest report on the industrial sector is more important. 70,000 new jobs were created here recently; in other words, nearly half of the total growth in manufacturing. Even better, it now turns out that the two previous months were stronger too, as the data was revised upwards. The current labour market figures therefore fit much better in the positive sentiment reflected by the surveys of the managers of industrial enterprises conducted since the start of the year.

Overall, the latest report shows that momentum on the US labour market is on a very solid footing. We do not see the slight increase reported for the unemployment rate as a warning signal either. At only 4.4 percent, the ratio remains at a historically low level. Based on the extremely good sentiment that prevails in the services and industrial sectors according to the consumer surveys, we anticipate robust employment momentum in the months ahead as well. The latest rise in the ISM industrial climate to its highest level since April 2011 suggests that US jobs growth will not be driven solely by the services sector during the rest of the year.

However, the debt ceiling hike in the near future poses an imminent political risk. The results of the economic and consumer surveys do not appear to attribute any great likelihood to the threat of state insolvency. The payout of aid to the regions damaged by tropical storm Harvey will possibly afford even less time than originally assumed for negotiating a parliamentary compromise. Especially in light of the tragedies that have unfolded in the stricken regions, we consider it highly unlikely that one of the parties will distinguish itself as being obstructionist. In fact, they might not even go to the wire before reaching a compromise. A bridging solution is also quite conceivable in the months ahead.

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