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[Quick Facts]

1. July nonfarm payrolls show job growth slows.

2. Atlanta Fed GDPNow model raises U.S. Q3 growth estimate.

3. Eurozone retail sales fall unexpectedly in June, weighing on consumer demand.

4. ECB says underlying inflation may have peaked.

5. Fed's Bowman says more rate hikes likely will be needed to reduce inflation.

6. The Fed is divided.

[News Details]

July nonfarm payrolls show job growth slows

July nonfarm payrolls expanded by 187,000, slightly below market expectations of 200,000, while the number of jobs created in the previous two months was reduced by 49,000. It seems good as the labor market has slowed down as expected. The July rate hike will be the Fed's last interest rate hike. However, if you look at its sub-data, you will find that much of the decline in employment was due to a reduction in government employment which was only 15,000 this month, compared with 57,000 last month. Private sector employment instead rose from 128,000 last month to 172,000 this month.

The notable decline in government employment was largely due to fewer education jobs in state and local governments in the summer holidays (-20,000 this month vs. +27,300 last month). Excluding the difference in employment in the education sector, government employment was a little different from last month. The employment gap still exists, supported by the fact that vacancies for government jobs other than education continued to rise sharply, and hiring demand remains strong.

Employment in the government sector is less affected by market conditions, so cautious optimism is needed about the slowdown in the labor market demonstrated by this nonfarm payroll.

Atlanta Fed GDPNow model raises U.S. Q3 growth estimate

The Atlanta Fed GDPNow model's latest estimate on August 1 showed that the U.S. GDP growth rate in the third quarter of 2023 is expected to be 3.9%, compared with the forecast of 3.5% on July 28. Following the release of the reports on construction spending and manufacturing ISM, in its August 1 forecast, GDPNow increased the nowcasts of third-quarter real personal consumption expenditures growth and real gross private domestic investment growth from 3.1% and 4.7%, respectively, to 3.5% and 5.2%.

Eurozone retail sales fall unexpectedly in June, weighing on consumer demand

Eurozone retail sales fell unexpectedly in June, signaling that high inflation and concerns about an economic slowdown continue to weigh on consumer demand. Revised data released by Eurostat on Friday showed that sales fell 0.3% in June from May, compared with market expectations for a 0.2% increase. The annual rate was down 1.4%. Sales of food, beverages, and tobacco, which are more affected by price inflation, led the decline, down by 0.3%. Data showed that Eurozone inflation continued to slow in July, falling to 5.3% from 5.5% in the previous month. Despite the European Central Bank's efforts to use tighter monetary policy to reduce demand and prices, core inflation has remained at the same level. Economists say core inflation should decline more sharply from the fall, but that may be too late to rule out a further ECB rate hike in September.

ECB says underlying inflation may have peaked

The ECB said on Friday that underlying inflation in the Eurozone may have peaked, suggesting that other price growth is also slowing. This latest news is likely to cement expectations that the ECB will halt its ninth consecutive interest rate hike in September, as underlying inflation filters out the most volatile prices and is closely watched by euro area central bankers. "The median and mean of the indicators suggest that underlying inflation is likely to peak in the first half of 2023," the ECB said in an article published on Friday. The ECB said most of the core inflation indicators it watched have shown signs of slowing.

Fed's Bowman says more rate hikes likely will be needed to reduce inflation

Fed Governor Michelle Bowman delivered a speech on August 5, saying that the recent lower inflation data is a positive sign, but she will continue to look for evidence that inflation is declining meaningfully toward the 2% target as she will consider whether to raise rates further and how long rates will need to remain at restrictive levels. I will also be watching for signs of slowing consumer spending and signals of loosening labor market conditions, she added.

Bowman also said that policymakers will assess upcoming data and should be willing to raise rates in the future if progress on disinflation stalls.

The Fed is divided

After the release of non-farm payrolls data last Friday, two Federal Reserve officials have delivered speeches, highlighting the Fed's current internal divisions.

Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said the economy is expected to slow in a fairly orderly fashion, and the nonfarm payrolls continued that pace. He didn't see this ending anytime soon. I don't see the need for further rate hikes, he said.

Federal Reserve Bank of Chicago President Austan Goolsbee, on the other hand, said that policymakers need to be patient as inflation declines and hope that the central bank will be able to bring inflation down to its 2% target without triggering a recession. The FOMC may need to start thinking soon about when to keep rates steady and for how long.

As we can see, Bostic's view is clear, but Goolsbee's speech was relatively euphemistic. Roughly speaking, Goolsbee thinks rate hikes can stop, but more evidence will be needed to prove that inflation is indeed slowing down. Otherwise, the Fed will need to continue to raise interest rates.

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