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USD outlook pressured after weak July payrolls and expected softer retail sales
TD Securities expects July retail sales to post their first monthly decline since January, citing labor weakness that could reinforce views of restrictive policy.
TD Securities said the July jobs report surprised sharply to the downside, with headline job gains falling due to government hiring, while private employment stayed near breakeven. The firm pointed to -23k job gains in July, including negative revisions that subtracted 103k jobs from May and June.
It also noted that the unemployment rate declined again to 4.1%, but declined “for bad reasons” as participation edged down. TD Securities attributed the drag on the headline to government jobs of -53k, driven by local government education after recent volatility.
On the outlook, the firm said it would not extrapolate too much from the payroll data for Fed decision-making. In its view, inflation data remains key amid supply shocks, and the jobs report mainly reduces the urgency for hikes while easing fears about labor market driven acceleration.
TD Securities added that it expects retail sales to decline 0.2% month over month in July, the first decline since January, after a subdued 0.2% increase in June. It expects weakness to be led by auto and gas sales, and said additional weak data could strengthen arguments that policy is still restrictive.