A solid jobs report for July, but what will the Fed do in September? US auto sales – victims of their own success; Germany’s infrastructure badly needs some TLC.
“By any measure, real long-term interest rates are much too low and therefore unsustainable.”
U.S. Jobs: Closely watched gains July’s 209k rise in non-farm payrolls was high enough above consensus forecasts to cheer many analysts. The same was true of the closely-watched labor participation rate, which rose slightly to 62.9%, driving the unemployment rate down to 4.3% from 4.4%. One other key number was also fairly strong; average hourly earnings rose 0.3% vs. June, bringing the year-on-year rate to 2.5%, better than expectations. The only clunker was the so-called underemployment rate, unchanged at 8.6%. This figure represents job-seeking workers without jobs, plus full-timers driven to part-time or less-than-desired jobs.
Fed-watchers are paying particular attention to these figures in the hope of handicapping the number and timing of the its next rate hikes – as well as the much-anticipated beginning of reductions in the central bank’s balance sheet, The latter is believed by many to start in earnest right after the September 19-20 meeting, economic conditions permitting.
U.S. Autos: Quality drives quantity After the U.S. industry’s latest brush with death in 2008, auto manufacturers got religion; today’s cars are miles ahead of only a few years ago in design, build quality and longevity. But longevity comes at a cost; now that US drivers have largely replaced their aging sub-par wheels, replacement buying has slowed dramatically. The result: auto sales fell 7% in July, compared with a year earlier. No doubt there are other causes as well; increased scrutiny of financing offered to would-be buyers with low credit scores among them. But the build-up of off-lease used car inventories isn’t helping matters; manufacturers are beginning to reduce manufacturing shifts and laying off workers this summer. It could be a difficult year ahead for automakers in the U.S..
German infrastructure: A bridge sub-par Germany’s underinvestment in infrastructure is beginning to show. At least one of the bridges across the Rhine, on a major trucking route between manufacturers and their customers, has been closed to heavy traffic since 2012. A second bridge was closed this past week between the industrial Ruhr Valley and one of the most important transport links with the Netherlands and its ports. One of the country’s development banks estimates the total infrastructure “investment gap” to be over €125 bn, €34 bn of which is for roads.
The issue is large enough to figure in Germany’s September elections; Chancellor Angela Merkel’s fiscal conservatism, including her party’s unwillingness to spend the country’s hard-earned surplus, has made her a target for the Social Democrat Party’s Martin Schulz.