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New data shows a larger-than-expected increase in US private payrolls in July.
Overall, the US labor market moderated in July, adding 187,000 jobs, reflecting efforts by the Federal Reserve to cool the economy. The unemployment rate sank back to 3.5 percent, near a record low.
London Business School’s Professor Richard Portes appeared on CNBC Squawk Box Europe to discuss the latest US employment figures and the country’s overall economic performance.
Richard was asked his views of the latest round of data coming out of the US.
“The data flow is always very interesting and always very noisy. I don’t think that one should be as data-dependent as some of the central bankers might suggest they are,” said Portes.
Should they – central bankers – move as the result of one month’s data?
“Certainly not, and what I think we’re looking at now is longer term phenomenon that is very comforting for the US economy, that inflation is coming down, that unemployment levels are staying stable and that the economy is growing and productivity is rising; it is way up according to latest figures.”
With bond markets starting to reflect those positive sentiments. Warren Buffet is evaluating buying the shorter duration bonds, and three and six-month Treasury bills. The curve is deepening. What does that tell you about the economic trajectory from now on?
“I think we pay too much attention to the curve and the market implied forecasts,” said Portes. “I think we need to look at the fundamentals of the economy. One important aspect to the jobs market is that people do not pay enough attention to the quit rate. In the period of a really tight labour market the quit rate was going up, but now it has turned down and it continues to turn down. That tells us that the pressure in the labour market has moderated and workers are not so keen to leave their jobs for new opportunities.”
The US government’s credit rating has been downgraded Fitch following concerns over the state of the country’s finances and its debt burden, cutting the rating from the top level of AAA to a notch lower at AA+. How significant was this?
“I don’t think we should take the credit ratings agencies seriously. If you look back at their record, it is appallingly bad. We have been here before with S&P – what effect did that have? Zero! Quite rightly, because I think the markets understand that the credit agencies are late in what they decide. They decide on data that might not be entirely relevant. In this case, the credit of the United States and of Treasury Bonds is perfectly solid. The idea that one is going to downgrade the US because of the stand-off about the debt ceiling, that is just bizarre.”
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