A slowdown in US jobs growth suggests success for Fed policy

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• Ukraine attacked the oil export infrastructure that helps fund Moscow’s invasion for the first time, using a drone strike to damage a Russian naval vessel outside the port of Novorossiysk. The attack follows a series of Russian strikes on Ukraine’s grain export facilities.

• Container shipping giant Maersk warned that a contraction in global trade would be longer and deeper than feared, as companies cut their inventories in the face of recession risks in Europe and the US.

• UK housebuilding activity fell sharply in July, the eighth consecutive month of contraction, as higher mortgage rates hit demand, according to new survey data.

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Good evening.

Growth in US jobs was weaker than expected in July in a fresh sign that the labour market is cooling and the Federal Reserve is making headway in its fight against inflation.

Today’s non-farm payrolls data showed 187,000 new jobs were added, while the number of new positions for the previous two months was revised lower. Hourly earnings growth, however, was stronger than expected at an annual 4.4 per cent. The overall market remains robust, with the unemployment rate dipping from 3.6 per cent to 3.5 per cent.

As major contributors to inflation, wages and the number of job openings are closely watched by the Fed and today’s data will fuel the view that its tightening of monetary policy, including last week’s interest rate increase to the highest level in 22 years, is helping bring price pressures under control without driving the economy into a severe recession.

Consumer price inflation fell more than expected in June, while the central bank’s preferred indicator — the core measure of the personal consumption expenditure index — also hit the lowest level since October 2021. 

“It does seem that the labour market is cooling, albeit slowly, which is just what the Fed will want to see,” said Neil Birrell of Premier Miton Investors. “Overall, this increases the chances of rates being at their peak and the Fed pulling off the trick of getting inflation under control whilst keeping the economy strong.”

Across the Atlantic, new data earlier this week showed the eurozone labour market also remained in pretty good shape. Unemployment fell to an all-time low of 6.4 per cent despite weak economic growth. The European Central Bank has echoed the Fed in expressing concern that rising wages could keep price pressures high: wage growth was almost 5 per cent in the first quarter.

In the UK, the Bank of England said this week that the labour market was “loosening” but remained tighter than before the pandemic. Yesterday it raised interest rates by 0.25 percentage points to a 15-year high of 5.25 per cent but said it was “too early to conclude that the economy was at or very close to a significant turning point”, a point echoed by the FT editorial board.

BoE policymakers said they now saw evidence of a feedback loop developing between wages and prices, meaning that “some of the risks of greater persistence . . . had crystallised”. The labour market’s strength has been one of the key causes of core inflation remaining at elevated levels.

Need to know: UK and Europe economy

UK businesses are turning more optimistic about the outlook for inflation but the fear of stoking price rises has caused the government to postpone again the introduction of post-Brexit UK border checks for food.

Investors have turned gloomy on Europe’s economic prospects in stark contrast with their view that the US is headed for a “soft landing”. ECB policymaker Fabio Panetta said inflation could be beaten without more rate rises.

Inflation in Turkey jumped to almost 50 per cent as the weak lira and the government’s stimulus programme pushed prices higher.

Need to know: Global economy

The head of a US congressional committee urged President Joe Biden to widen limits on investments in China to cover stocks and bonds in order to counter security threats.

Saudi Arabia warned it could deepen cuts to oil production as it extended its voluntary supply curbs with Russia for another month.

Local government officials in China are busy swotting up on the best ways to get a good score in the World Bank’s ease of doing business index. Asia business editor Leo Lewis explains what smart toilets can tell us about the state of Chinese consumer spending.

India abruptly restricted the import of personal computers including laptops and tablets as it tries to boost its domestic electronics industry. Companies such as Apple will now need a licence to ship PCs from overseas.

Need to know: business

There was better news for Apple in its quarterly results. Profits at the world’s largest company by market value rose more than expected to $19.9bn, thanks to its digital services business. Sales of iPhones, iPads and Macs, however, were weak.

Better than expected online sales and an improvement in cloud computing helped Amazon almost double after-tax earnings, fuelling further increases in its share price. But it is still unclear as to when Big Tech’s surge in AI investment might start to pay off.

Chinese deal activity in the US has slumped to its lowest level in almost two decades as geopolitical tensions between the two countries weigh on activity.

Hedge funds have lost more than $6bn this year betting against cruise companies and hotels after underestimating the strength of US consumer spending.

But the rebound in travel helped Lufthansa, which posted record profits from higher ticket prices, and Rolls-Royce, which charged higher prices for servicing the engines of the world’s large airliners, such as the Airbus A350 and Boeing 787. Airbnb customers also seem happy to pay higher prices.

The spat between drinks company Diageo and US rapper Sean Combs, aka Diddy, over their tequila joint venture highlights the potential problems for companies entering into high-profile tie-ups. See also: Adidas vs Kanye West.

Bonds have long been considered the most boring bit of finance but have played an integral role in the development of human society, from subsistence farming to the modern era, funding everything from wars and railways to Netflix. Here’s a short history of the market that will shape the next financial crisis.

Science round up

Commentator Anjana Ahuja assesses the hype around the LK-99 superconductor, a pebble-sized dark rock made of lead, phosphorus, copper and oxygen. Is it too good to be true?

Ahuja also asks whether the rapid development of AI bots means we need a new Turing Test. By the time machines can convince us they are human, we may well be incapable of doing much about it, she says.

Glasgow university spinout Chemify has raised $43mn to “digitise chemistry”, using a computing process that runs continuously from designing new molecules with AI to making them in an automated lab.

An FT Big Read examines the science of weather forecasting. Meteorologists’ predictions are becoming more accurate but some dramatic events remain difficult to pin down.

A ban on new boilers is central to Germany’s efforts to achieve carbon neutrality but another law requiring municipalities to find climate-friendly energy sources for local heating may prove even more consequential: cities are digging deep to tap geothermal energy.

Competition to build a commercial replacement for the International Space Station is heating up. Airbus this week announced a joint venture with US start-up Voyager on its Starlab project.

Will astronauts on the new ISS be alone up there? A respected former US intelligence official told a US congressional committee last week that, in effect, aliens existed. Henry Mance looks at the evidence for extraterrestrial life.

Something for the weekend

Try your hand at the range of FT Weekend and daily cryptic crosswords.

Some good news

New hopes of defeating malaria have come from GSK’s accidental discovery of a bacteria in the guts of mosquitoes that can limit the growth of the microscopic parasites that cause the disease, which kills more than 600,000 a year.