US jobs report seen reinforcing Kevin Warsh's view of labour market

By Vince Golle and Craig Stirling

 

US payrolls growth got back on track in August, consistent with general steadiness in the labor market that’s helping the Federal Reserve focus more intently on its battle with inflation. 

 

Economists estimate the monthly jobs report from the Bureau of Labor Statistics on Friday will show a 55,000 increase in payrolls after an unexpected dip in July employment. Such a result would be broadly in line with average job growth this year.

 

The unemployment rate, based on a survey of households rather than establishments, is seen holding at 4.1 per cent.  

 

Steady labor demand combined with limited layoffs are “consistent with full employment,” Fed Chairman Kevin Warsh said Friday at the US central bank’s annual conference in Wyoming. The stable job market has fueled consumer spending and allowed the broader economy to forge ahead.

 

 

With employment growth continuing, Fed officials are zeroing in on price stability — the other half of the central bank’s dual mandate. Inflation has been holding well above the Fed’s 2 per cent goal for years.

 

The jobs report will cap a busy week on the US economic data calendar, including the BLS’s July job openings and labor turnover survey on Tuesday. 

What Bloomberg Economics Says...

“Warsh’s hawkish Jackson Hole speech raised the odds of a rate hike in September, and changed how the coming week’s data should be read. August’s jobs report remains the headline release, but the lackluster showing we expect may be less consequential than normal. Warsh portrayed the labor market as in good health and pointed out that softer job gains are often a matter of demographics, not an economy in decline.”

 

—Anna Wong, Andrew Sacher & Eliza Winger. 

 

In light of Warsh’s comments, which were enough to boost the prospects for an interest-rate hike at the Fed’s September policy meeting above 50 per cent, investors will seek clues about inflation from a pair of industry reports in the coming week. 

 

The Institute for Supply Management will release its manufacturing survey on Tuesday, followed by the services version on Thursday. Both include measures of prices paid for materials. 

 

Canada has a busy week in store, too, with a Bank of Canada rate decision Wednesday — no change is anticipated — followed by international trade data Thursday and labor market numbers on Friday. 

 

Looming over it all is the acrimonious collapse of Canada-US trade talks and new tariffs on the way from both sides. There’s no sign of negotiations resuming any time soon.  

 

Elsewhere, a pickup in euro-zone inflation, a possible rate increase in New Zealand, and a gathering of Group of 20 finance ministers in Asheville, North Carolina, may be among the highlights.

 

Asia

 

Central bank decisions from New Zealand and Malaysia will take center stage as policymakers assess the fallout from the West Asia crisis, renewed tariff tensions, and an uneven regional growth picture increasingly shaped by the artificial-intelligence boom.

 

The Reserve Bank of New Zealand could make another round of monetary tightening on Wednesday as the fuel shock continues to feed through to the economy. But sluggish demand — employment, retail sales, mortgage lending are softening — may give policymakers some pause.

 

Bank Negara Malaysia follows on Thursday and is likely to stand pat. Malaysia has been one of the region’s outperformers, with energy subsidies keeping inflation subdued and a booming AI sector spurring robust economic growth.

 

Others in Asia are more vulnerable as uncertainty over a US-Iran peace deal keeps the threat of elevated energy costs alive. South Korea and the Philippines, both heavy importers of oil, will report inflation data on Wednesday and Friday, respectively. 

 

Meanwhile, India releases second-quarter GDP on Monday. Growth is expected to dip slightly while still coming in at a strong 7.3 per cent, with consumption and services holding up despite price pressures. 

 

Australia’s GDP data comes on Wednesday, with higher rates and a deepening housing downturn weighing on growth.

 

Lastly, factory gauges will be another snapshot of the region’s economic health. China kicks off the week with official PMIs on Monday, followed by a broad sweep of August factory surveys Tuesday across Japan, South Korea, Indonesia, Malaysia, the Philippines, Thailand and Taiwan. China’s RatingDog manufacturing PMI is also due.

 

The readings will provide a snapshot of how Asian manufacturers are coping with the reemergence of tariff tensions, even as AI-related demand continues to buoy parts of the region. South Korea’s August exports will be an important barometer of the technology cycle, particularly semiconductor demand.

 

Europe, West Asia, Africa

 

Euro-area inflation probably surged in August to the fastest pace since 2023, keeping up pressure on policymakers to raise rates. Consumer prices probably climbed 3.3 per cent from a year earlier, according to the median of 31 forecasts for data due on Tuesday. 

 

Those outcomes follow data on Friday showing Spanish inflation surged to more than double the European Central Bank’s 2 per cent target, while France’s reading exceeded expectations as well. 

 

Germany will kick off the flurry of data on Monday, with annual price increases forecast at 3.1 per cent, the fastest since early 2024. Italy’s result on Tuesday is anticipated at 3.4 per cent, which would be the highest there in almost three years.

 

Also in Germany, factory orders for July come out on Friday, and economists predict a third month of gains. 

 

Few appearances are planned by ECB policymakers, and after Wednesday they enter a pre-decision quiet period before their meeting the following week. 

 

Switzerland’s latest inflation report is due on Thursday, with a mild pickup to 0.5 per cent forecast by economists. That’s still well within the 0-2 per cent range targeted by the Swiss National Bank, and below its forecast for the current quarter. 

 

In the UK, Bank of England Governor Andrew Bailey speaks in London on Friday, while his institution’s Decision Maker Panel report featuring companies’ inflation expectations comes out the same day. 

 

In the West Asia, data on Monday are expected to show Turkey’s economy expanded in the second quarter by 2.5 per cent from a year earlier and by 1 per cent on a quarterly basis, signaling a robust recovery despite high rates.

 

On Thursday, Turkish inflation is forecast to have eased to 31.6 per cent in August, while the monthly rate may fall below 2 per cent. The releases precede the central bank’s Sept. 10 rate decision, when policymakers may consider another cut in borrowing costs.

 

In Israel, the central bank may deliver a third consecutive rate cut on Tuesday, to 3.25 per cent. Still, some economists see the case for a pause. Citigroup argues that “in the absence of any urgency,” policymakers may opt to keep rates unchanged. 

 

Latin America

 

Brazil will be a regional focus with fresh economic data, including a second quarter gross domestic product print ahead of its tightly contested October election. 

 

Tuesday’s GDP figures are expected to show Latin America’s largest economy having lost some momentum in the second quarter as double-digit rates weigh on growth.  

 

Bloomberg Economics forecasts a 0.4 per cent quarterly advance, a reading that may bolster the case for another rate cut in September after inflation eased into the target range early this month. But it would also provide a warning to President Luiz Inacio Lula da Silva, whose efforts to stimulate the economy are faltering in the midst of his reelection bid.

 

The day prior, Brazil’s central bank will publish budget balance and debt-to-GDP data, figures that are drawing attention from investors anxious about how the next government will approach the nation’s deteriorating public accounts. 

 

Industrial production data on Wednesday will provide another glimpse at the strength of Brazil’s economy. Trade balance data for August are due on Friday, the first full reading after new US tariffs on many goods took effect in late July.

 

Elsewhere, Chile will publish a bevy of statistics, including July industrial and copper production totals, on Monday. It releases economic activity readings for the month on Tuesday, after GDP unexpectedly stalled in the second quarter.

 

Peru reports inflation data for August on Tuesday, with the annual reading expected to have risen further above the central bank’s target. 

 

Policymakers held rates steady earlier this month on expectations that the inflation spike proves temporary, but the El Nino climate phenomenon is adding to concerns about the outlook.