The U.S. Economy created 215k jobs during the month of July, and the June non-farm payrolls print was revised up to 231k, consistent with the type of labor market strength the Federal Reserve wants to see before they begin raising interest rates. The unemployment rate held steady at 5.3%, and the labor force participation rate was unchanged at 62.6%. Several FOMC “hawks” were on the tape last week, including Atlanta Fed President Dennis Lockhart, who said in an interview that the economy is ready for an increase in short term interest rates and that it would take a significant deterioration in economic conditions to convince him to not vote for a move in September. The two-year Treasury climbed higher during the week, reaching 0.72% on Friday, just shy of its highest level this year. Despite much ado about the timing of the first interest rate increase, we would emphasize that it’s the pace of tightening that will likely have the biggest impact on rates going forward. The manufacturing sector of the U.S. economy still faces headwinds from falling energy and commodity prices, while the stronger U.S. dollar is hurting exports and holding down prices on imported goods. As such, we expect the 10-year tenor of the curve to remain range-bound, barring a surprise uptick in inflation or economic growth.
Sources: WSJ, Bloomberg