Federal Reserve: Fed focus shifts to jobs – ABN AMRO

ABN AMRO’s Chief Economist Nick Kounis highlights renewed US labour market weakness, with Nonfarm Payrolls falling and household employment data softening. He notes the unemployment rate declined as labour force participation dropped to multi-decade lows, signalling cyclical weakness. Kounis argues this could re-balance Federal Reserve concerns toward employment, while ABN AMRO still expects the Fed to stay on hold, with inflation risks skewing toward a hike.

Weak jobs data challenge Fed stance

"US nonfarm payrolls fell by 23K in July (+80K), while there were downward revisions to previous months, which left the 3-month average gain in employment at just +20K."

"Declining participation, although reflecting some structural elements, is usually an indicator of cyclical labour market weakness."

"The data support our view that some of the strength in payrolls in the last few months was flattered by transitory factors."

"Today’s report could re-balance those concerns to the labour market side of its dual mandate."

"We maintain the view that the Fed will remain on hold over the next few months, though high inflation still means that the risks are skewed towards a hike."