Senior economist: construction industry recovers, economy jumps, and Ben Gurion Airport sees record traffic

Ofer Klein, head of the Economics and Research Department at Harel Insurance and Finance, conducted a weekly economic review, focusing on the weakening labor market and the receding interest rate hike in the USA, interest rate decisions in Australia and Brazil, exports in China, and inflation and deficit targets in Israel ahead of the upcoming Consumer Price Index release.

"The weak employment report in the USA significantly reduced the chance of an interest rate hike in September. This week, markets will focus on inflation data in the USA and Israel, alongside regional developments. In our assessment, this combination will determine whether central banks will continue to wait or if inflation will return to center stage," Klein stated.

US Labor Market and Global Trends

The US labor market is weakening. According to initial estimates, a decrease of about 23,000 jobs was recorded in July, and data for the previous two months were sharply revised downward by 100,000. Excluding the government sector, only about 30,000 jobs were added in the private sector each month. However, the construction and health sectors continue to add jobs, partly due to the development of artificial intelligence infrastructure.

Average hourly wages rose at a slower pace of 3.2%, the slowest in five years. While the official unemployment rate fell to 4.1%, this is largely due to a continued decline in the labor force participation rate to its lowest level since the peak of the COVID-19 pandemic.

Elsewhere in the world:

1. Australia: The Central Bank left the interest rate unchanged at 4.35% for the second consecutive time.

2. Brazil: The Central Bank lowered the interest rate for the fourth time in a row by 0.25%, to 14%.

3. China: Goods exports rose by 25% in July compared to last year, led by technology and advanced industry sectors.

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Israel's Economy: Deficit and Forecasts

In Israel, the deficit remains below the target, though rising expenses are expected to shift the trend later this year. Budget data for July show a 12-month deficit of 3.3%. July expenditures reached a monthly peak of nearly 55 billion NIS, one-third of which were security-related costs.

This week, the focus is on July's Consumer Price Index, expected to rise by about 0.3%, with 12-month inflation likely to remain around 1.6%. Two days later, initial second-quarter growth data will be published, where we expect a rapid annual growth rate of 5% to 7%.

Construction and Tourism

The current quarter in Israel has started on a positive note. The CBS business trends survey for July indicates a positive start, with improvements in industry, retail, and notably, the construction sector after months of weakness.

Conversely, the rush of Israelis for vacations abroad accelerated in July, with over one million flying out—the highest figure since the summer of 2023. We are likely to break an all-time record in August. The gap between the rapid return of Israelis to air travel and the slow recovery of incoming tourism remains a defining characteristic of the industry.