US Jobs Surge, AI Impact, and Inflation Data to Shape Fed Rate Decision
A weekly review by the investment house Psagot highlights contrasting economic trends in the United States and Israel, noting discrepancies between key data and the actual behavior of households and markets. In the U.S., the August jobs report surprised positively, showing a significant labor market recovery with 162,000 new jobs added, far exceeding the projected 50,000. Previous months' figures were also revised upward, leading to an average of 71,000 jobs added over the last three months and 107,000 over six months, the highest since July 2024. While the unemployment rate edged up to 4.14%, this was attributed partly to an expanding labor force, with household surveys showing a surge of 569,000 employed, including a rise in full-time positions.
However, the strong overall numbers mask a significant shift within the labor market. The information and communication technology sector continues to shed jobs, contrasting with positive trends in leisure, construction, education, and health. Psagot suggests this is a clearer indication of artificial intelligence's impact on labor demand, with automation and AI tools potentially reshaping employment structures. Meanwhile, U.S. wage growth remains moderate, rising 0.3% in August for an annual rate of 3.1%. This moderate wage increase is seen by the Federal Reserve as crucial for managing inflationary pressures.
The robust employment data provides the Federal Reserve room to maintain its current interest rate policy. Attention is now shifting to upcoming inflation figures, particularly the U.S. Consumer Price Index, which could be a key factor in the next interest rate decision. Political pressure from U.S. President Donald Trump, urging the Fed to lower interest rates, could paradoxically lead to a more hawkish stance from the central bank to assert its independence.
In Israel, the economic picture is different but also presents a paradox. The average salary in June rose to NIS 15,218, a 7.7% annual increase, with real wages growing by 5.9%. Despite this income growth, consumer spending shows signs of slowing. Credit card purchase data indicates a 2.2% increase between May and July, down from 5.2% in the preceding period. This slowdown is evident across various sectors, with spending on food and beverages decreasing by 0.8%, and spending on manufactured goods growing at a more moderate pace.
Psagot anticipates this restrained consumer trend to continue in Israel at least until year-end. For investors, the U.S. requires close monitoring of inflation and labor market developments, alongside AI's impact on tech sectors. In Israel, the consumption slowdown may weigh on retail and consumer goods companies. The review concludes that the U.S. labor market's strength complicates interest rate cuts, while AI reshapes job demand. In Israel, rising wages are not translating into increased spending, which could support potential monetary easing by the Bank of Israel if inflation data permits.
