US: Focus on labour market report - BBH

Analysts at BBH suggest that it is not that the update on the US labor market is unimportant, but the question for investors is its impact on the powerful trends in the market.  

Key Quotes

“Given the current drivers, even a fairly strong jobs report is unlikely to change the direction change views on the US economy and the trajectory of monetary policy.”

“The note of caution that has peppered comments by some officials is not based on disappointment with the labor market per se.  Job growth continues at a pace that is gradually absorbing slack in the labor market.  The three-month average stands at 194k, just above the 2016 average of 187k.”

“The main challenge is the price pressures remain subdued.  Remember that in the traditional view, headline inflation converges with core inflation and core inflation is driven by wages.   The average hourly earnings component of the jobs report is the most important in the current environment.”

“Last July hourly earnings rose 0.4%.  That means that a 0.4% increase is needed in July simply to keep the year-over-year pace at the 2.5% seen in June.  It has not risen by more than that since November 2008 (0.5%).  The three-, six-, and 12-month average is at 0.2%.  Not to put too fine of a point on it, but the real issue is how much will the year-over-year pace slow:  2.3%-2.4%.  It finished last year at 2.9%.”