This could have been quite likely the most ironically timed public holiday in history. US markets and much of the US economy alike were closed yesterday for ‘Labor Day’ – a US public holiday celebrating the progress of workers’ rights and workers’ contributions to building today’s United States of America. However, Monday’s public holiday comes straight after a critical spotlight was shone over the US labour market last week which questioned why labour statistics are not increasing! On Friday, the first Friday of the month, ‘non-farm payrolls’ data [herein NFP] were released. This follows, as always, the release of the ADP employment survey on Wednesday that we have spoken about in depth before. The NFP numbers were forecast to show almost three-quarters of a million jobs added to the US economy in August. The real figures came in at just 350,000 jobs in a sign the US labour market is far behind where it should be. Behind the headline, the raw data was arguably even more concerning. The US economy did not only add less jobs than expected but many sectors including hospitality and retail had net employment reductions in the order of tens of thousands. It also confirmed that the employment gap remains some 5.3 million shy of pre-covid levels.
As we have written before, the labour market is the final piece of the puzzle necessary for policy and growth to normalise. It is the variable that the Federal Reserve has leveraged in the way of tapering policy. USD weakness in recent sessions since the release is indicative of the shifting expectations towards US growth and policy. To add to this risk to the Dollar, and other US asset classes alike, this week will see the additional federal unemployment payments expire. These payments have afforded up to $300 per week to bolster household budgets. Some 7.5 million Americans are set to lose out on such payments when they expire in a few days’ time.
Of course, the reduction of this additional fiscal stimulus might not necessarily be bad news for US employment or unemployment numbers. As we already know, thanks to the falling unemployment rate that accompanied the weak NFP numbers, workers’ attitudes to employment have changed. There remains the chance therefore that a reduction in the record stimulus that has sustained these changing attitudes could encourage labour supply and, should that prove to have been the constraining factor on full employment, see the labour market flourish.
However, with significant concerns surrounding the Delta variant and spikes in infection whilst vaccination uptake remains somewhat lacklustre, there is the risk of immediate harm to consumer spending as a result of the fiscal retreat. The impact upon USD as a defensive asset will depend upon global economic performance.
Discussion and Analysis by Charles Porter
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