United States: Weak payrolls and softer retail sales – TD Securities
TD Securities notes July payrolls surprised sharply to the downside, with headline jobs dragged by government hiring, while private employment stayed near breakeven. The firm expects July Retail Sales to post the first decline since January, aligning with softer labor data, though they still see overall economic activity as stable given mixed but expansionary ISM readings and robust Q2 underlying GDP growth.
Labor softness and consumption slowdown
"July payrolls surprised sharply to the downside on Friday, posting -23k job gains with negative revisions subtracting 103k jobs from May and June. The UE rate declined again to 4.1% but for "bad reasons" as the participation edged down again."
"However, we would not extrapolate too much from the jobs report. Private job gains were 30k, with private sector hiring being overall in line with the breakeven rate this year. Government jobs (-53k) drove down the headline, led by local government eduction after recent volatility in the ex education segment. The July report essentially reflects monthly volatility amid longer-term stability."
"The jobs number should not change much for the Fed. Inflation data will remain key amid two consecutive supply shocks. While the jobs report does reduce the urgency for hikes and allays fears of acceleration, the labor market was never the main source of inflationary worries for Fed this cycle. Attention will turn to inflation data this week."
"Retail sales this week will likely show weak spending in July, in line with payrolls. Another key data report showing weakness would support arguments that policy is still restrictive. However, we are not yet ready to downgrade our view of economic activity. The ISMs last week were mixed but still remained expansionary, while Q2 underlying GDP growth was robust."
"Retail Sales: Retail sales likely declined 0.2% m/m in July following an already subdued 0.2% increase in June. The first decline since January will likely be led by negative auto and gas sales. Control group sales were likely flat partly due to normalization after Amazon Prime Day."
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