Synopsis:

CIBC discusses the implications of the weaker-than-expected US labor market data for July, suggesting it aligns with a Fed rate cut in September and raises the likelihood of three cuts this year.

Key Points:

1. Weaker Job Creation:

   • Job Growth: The US economy added 114K jobs in July, significantly below the consensus expectation of 175K.

2. Rising Unemployment Rate:

   • Unemployment: The unemployment rate increased by two ticks to 4.3%, compared to the expected 4.1%.
   • Participation Rate: The participation rate edged up by one tick.

3. Slower Wage Growth:

   • Wage Increase: Wage growth decelerated to 0.2% for the month.

4. Negative Revisions:

   • Prior Months' Data: There were 29K in downward revisions to the job counts for the previous two months.

5. Fed Policy Implications:

   • September Rate Cut: This report is consistent with expectations for a Fed rate cut in September.
   • Increased Cut Expectations: It raises the odds that the economy may require three rate cuts this year instead of the two currently anticipated by CIBC.
   • Key Indicators: More crucial indicators, including upcoming inflation data, remain to be considered before the Fed finalizes its decision.

Conclusion:

CIBC interprets the July labor market report as aligning with a September rate cut by the Fed and suggests an increased likelihood of three cuts this year. However, they highlight that key economic indicators, particularly inflation data, will be critical in the Fed's decision-making process.