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All Eyes on US Labour Market Data

Release of US labour market data, contraction of M4 money supply, and data releases today.

At 1330 this afternoon, attention will turn to the release of US labour market data. Here, the general market consensus is expecting a Nonfarms payroll print of 170,000 marking a slight slowdown from July’s 187,000 figure. If the consensus is released, Augusts’ payrolls number would also mark the third consecutive month under 200,000 – indicative of some softening in the world’s largest economy’s jobs market.

While a print of this figure would be the weakest in well over a year, many economists have suggested that the payrolls number would need to ease to some 100,000 to remain in line with population growth while not overly feeding into inflationary pressures. Thus, even a relatively softer-than-expected print could still be indicative of a US labour market which remains resilient in light of tighter monetary conditions.

Elsewhere, the US unemployment rate is projected to remain unchanged at 3.5% (its lowest level since the 1960s). Last month, US unemployment came in 0.1 percentage point less-than-expected as the number of unemployed fell by 16,000 to 5.841 million. The labour force participation rate is also expected to come in unmoved at 62.6%. With this figure being the highest level since March 2020, this would be a further indication that the US labour market continues to remain strong, despite wider economic headwinds.

Average earnings are also forecast to come in at 4.4% on an annualised basis, marking real terms increase in earnings given how inflation has now eased to 3.2%. Hence, with investors considering the Fed’s next move ahead of the FOMC’s meeting on 20 September, all eyes are on US labour market data and any changes to interest rate expectations.

 

UK M4 Money Supply Contracts

This week, we learnt that the M4 money supply has stopped expanding in the UK economy for the first time in over 13 years. Figures from the Bank of England indicated the M4 level of cash outside of banks (often referred to as ‘broad money’) in July 2023, contracted 0.9% on an annualised basis. The data also suggested a sharp contraction on a month-on-month basis given that M4 money supply fell 0.5% over July.

Many monetarists have cited the increase in the money supply over the pandemic (aided by the BoE’s vast QE programme) as a leading driver of inflation. As Bloomberg notes “The BoE has been attacked over its handling of inflation in the UK, with critics claiming it was too slow to respond to price pressures. Earlier this year, BOE Deputy Governor Ben Broadbent contested the monetarist claim that bond purchases under QE drove inflation higher.”

The fall in the M4 money supply has also raised recessionary fears with Mervyn King telling Bloomberg that “The risk is that having ignored money when inflation was rising, they’re now ignoring money when inflation is actually about to fall”. This comes as money markets imply a 90% chance of a 25bps rate hike at the BoE’s next meeting on 21 September.

Today in Focus

Aside from US labour market data, today has seen the release of the UK nationwide house price index which came in at a 5.3% contraction on an annualised basis. Swiss CPI also came in slightly higher than expected at 1.6% on an annualised basis and 0.2% on a monthly basis. After nonfarms, markets will also turn their focus to US ISM manufacturing PMIs released at 1500 this afternoon.

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