Labor weakness adds to the domestic demand drag

From AB Capital's The Opening Bell: Three Moves

Event

Unemployment rose to 6.01% in July, the highest since June 2022, as the labor force expanded by 3.7 million YoY. Employment still increased by roughly 3.2 million, suggesting the deterioration reflects insufficient job absorption rather than outright employment contraction, with young entrants driving much of the increase.

View

We think the market implication is that household demand may remain weaker for longer. Youth unemployment and the National Capital Region (NCR)'s 8.2% jobless rate point to softer income formation among new entrants, which could further constrain discretionary spending even as underemployment improved to 12.9% from 14.8% YoY.

Catalyst

At the current 52.36 million labor force, every sustained 1pp increase in unemployment represents roughly 524,000 additional jobseekers without work. A quick normalization after the graduate-entry season would limit the impact, while unemployment staying near 6% would reinforce downside risk to consumption and consumer confidence.

Action

In our view, this strengthens the case for a defensive stance on overall consumption exposure, i.e. we would favor staples like Puregold Price Club Inc. (PGOLD) and companies with resilient recurring revenues, while remaining cautious on discretionary retail, autos and property until job absorption improves more convincingly.

Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.