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To: HairBall who wrote (22470)	8/8/1999 10:33:00 PM
From: Les H	Read Replies (1) \| Respond to of 99985

Strong July Employment Report Clinches Fed Move at August 24 Meeting The July employment report, showing an acceleration in jobs and an upturn in wage growth, practically guarantees a tightening in policy at the Fed?s August 24 meeting. Non-farm payrolls soared 310,000 in July following upwardly revised gains of 273,000 in June and 28,000 in May. The job gains were broadly based across industries, up 110,000 in services, 91,000 in retail trade, 22,000 in construction and 16,000 in government. As well, manufacturing generated a net 31,000 positions in July, likely benefiting from the positive influence on exports of a soft US dollar and strengthening external demand. While the unemployment rate remained steady in July at 4.3%, there were signs of further tightening in labour markets. Overtime hours worked in the manufacturing sector continued to creep higher, to 4.8 hours in July from 4.7 and 4.6, respectively, in the previous two months. As well, the "augmented" unemployment rate, the "percent of the relevant population who are not at work, but would like a job" that Greenspan mentioned in his June 17 speech, dropped to 7.3% in July from 7.7% in June. This indicates a further shrinking in the potential supply of workers. (The "augmented" unemployment rate is derived by adding the number of unemployed to the number of people not in the labour force but wanting to work, and dividing this figure by the number of people in the labour force plus the number of people not in the labour force but wanting to work.) Wage growth is picking up. Average hourly earnings jumped 0.5% in July, pushing the year-over-year rate of increase to 3.8% from 3.7% in June. The increase suggests that the employment cost index ? Chairman Greenspan?s favourite measure of wage trends ? could jump again in Q3 following a sizeable advance in Q2. The July employment report, in our view, raises the odds of a Fed tightening at the August 24 meeting to near 100% from 70% or so prior to the report. An aggressive move of 50 basis points, however, is not expected in light of the still low inflation numbers. Nonetheless, a likely rise in inflation through the year is expected to spur a cumulative 100-basis points increase in the fed funds rate to 6.0% before the middle of next year. Debt markets crumbled following the much stronger-than-expected July employment report. The yield on 30-year Treasuries jumped to 6.12% from 6.05%, while the rate on 3-month bills climbed 5 basis points to 4.73%. The US dollar was little changed against most overseas currencies but appreciated against the Canadian dollar, rising to C$1.501 from C$1.498. A still-high Canadian unemployment rate (7.7%), sluggish income growth and low inflation suggest the Bank of Canada will not match the expected Fed rate hike, barring a downturn in the loonie. bmo.com Bank of Montreal

To: HairBall who wrote (22470)	8/8/1999 10:47:00 PM
From: James Strauss	Respond to of 99985

When do you see the third 1/4 point hike? Also, do you see end of year rate hikes and if so, how much? LG: I think we'll see the third rate hike at the Oct FED meeting... I don't see an end of year rate hike... We might even see an end of year rate cut as Y2k nears... That would also be 1/4 point... So, net/net we will have had 1/2 point of rate hikes... Not too bad relative to prior years... Jim