Psagot Review: Strong US Jobs Defy Forecasts as Israeli Spending Slows Despite Wage Growth

A weekly economic review by the Psagot investment house highlights significant economic trends in both the United States and Israel, revealing intriguing discrepancies between macroeconomic data and the actual behavior of households and markets.

US Labor Market Defies Expectations

In the United States, the August employment report surprised on the upside, showing a substantial recovery in the labor market. According to the review, the US economy added 162,000 jobs during the month, far exceeding early forecasts of approximately 50,000 jobs. Furthermore, data from previous months was revised upward. For instance, July's figure was revised to an increase of 21,000 jobs, after initially being reported as a decrease of 23,000.

As a result of these revisions, the three-month moving average for job growth rose from 38,000 to 71,000. The six-month average reached 107,000 jobs, marking the highest level since July 2024.

Household survey data also painted a relatively positive picture. The unemployment rate rose slightly to 4.14%, compared to 4.09% in July. However, Psagot analysts view this increase as positive because it was driven by an expansion of the labor force. Employment according to the household survey surged by 569,000, with full-time positions increasing by 735,000, alongside a decline in part-time jobs.

The AI Impact and Federal Reserve Pressures

Despite the strong overall figures, a structural shift is occurring in the US labor market. The information and communication sector continues to shed jobs, contrasting with positive trends in leisure, construction, manufacturing, education, and healthcare. Psagot notes that this is clear evidence of the impact of artificial intelligence on labor demand, as automation and the growing use of AI tools reshape employment structures in specific sectors.

Meanwhile, US wage growth remains moderate. Wages increased by 0.3% in August, bringing the annual rate to 3.1%. For the Federal Reserve, this is a crucial figure, as rapid wage growth could exacerbate inflationary pressures.

According to the review, the employment data gives the Federal Reserve room to maintain its current interest rate policy. Attention now shifts to upcoming inflation data, particularly the US Consumer Price Index (CPI), which will likely be a key factor in the next interest rate decision.

This economic backdrop is further complicated by political dynamics. US President Donald Trump continues to exert public pressure on the Fed to lower interest rates. Psagot estimates that this pressure could backfire, as the central bank may adopt a more hawkish stance to assert its independence.

Israel: Rising Wages, Cooling Consumption

In Israel, a different paradox is unfolding. The average wage rose in June to 15,218 NIS, up from 14,263 NIS in May. This represents an annual growth rate of 7.7%, while real wages rose at an annual rate of 5.9%, compared to 4.6% in the previous month.

However, this increase in income has not translated into higher consumption. Credit card transaction data indicates a slowdown in spending by Israelis. Between May and July, credit card purchases grew by only 2.2%, compared to a 5.2% growth rate between February and April.

This slowdown is evident across various sectors:

• Spending on food and beverages, including restaurants and deliveries, decreased by 0.8%.

• Spending on industrial goods such as clothing, furniture, and electrical appliances grew at a moderate rate of 5.3%.

Psagot estimates that this restrained trend in private consumption is expected to persist at least until the end of the year.

Market Implications

For investors, the implications vary by region. In the US, close monitoring of inflation and labor market developments is required, alongside an assessment of AI's impact on tech and information sectors. In Israel, the consumption slowdown could weigh on retail, food, restaurant, appliance, and apparel companies.

Ultimately, if the moderation in Israeli consumption continues, it may support the assessment that the Bank of Israel could proceed with monetary easing, provided inflation data allows.