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The US Federal Reserve may face a tougher call on interest rates in September after a stronger-than-expected August jobs report eased concerns over a sharp deterioration in the labour market, though signs of underlying softness could keep the door open for policy easing later, ICICI Bank Research has said.
US non-farm payrolls increased by 162,000 in August, well above expectations of 55,000, with gains led by leisure and hospitality and local government education. The previous two months were also revised upwards by a combined 55,000, taking the three-month average to 71,000. The unemployment rate remained unchanged at 4.1 per cent, while the labour force participation rate improved to 61.6 per cent from 61.4 per cent, indicating that the increase in available workers was being absorbed by the labour market. The employment-to-population ratio also edged up to 59.1 per cent. ICICI Bank Research noted that hiring was relatively broad-based, with employment gains in food services and drinking places, construction, manufacturing, healthcare and education. The private payroll diffusion index rose to 55.6 from 52.8, suggesting an improvement in the breadth of job creation. However, the report cautioned that the labour market remains weaker than its pre-pandemic trend. The three-month average of payroll additions at 71,000 is significantly below the roughly 180,000 monthly average seen during the pre-pandemic steady state. At the same time, wage growth continued to moderate, with average hourly earnings rising 3.1 per cent year-on-year in August compared with 3.2 per cent in July. ICICI Bank Research expects labour-market softness to persist, even as the August data reduces immediate concerns about a significant employment slowdown. The report said the stronger payroll print has increased pressure on the Federal Open Market Committee (FOMC) to consider a September rate hike, with the inflation data due next week likely to be decisive for the policy outcome. Financial markets have already reacted, with the dollar index and US Treasury yields rising following the jobs data. ICICI Bank Research expects the DXY to trade in the 98-100 range in the near term, with an upside bias over the medium term. (ANI)
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