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Thursday, July 27, 2006

U.S. Employment: Soft Landing Ahead

By Yaser Anwar, CSC of Equity Investment Ideas

Despite some hype this week that a blockbuster payroll report loomed, the June gain was below the average of the past 12 months, continuing a trend that started in April. A further moderation looms.

Corporate profit growth is expected to cool, and while we do not foresee a contraction ahead, executives are still likely to respond if our forecast for weaker consumption pans out.

I doubt that mass layoffs will occur (unemployment claims remain fairly low), but new job creation is likely to cool further.

The contraction in temporary employment during the past six months indicates that some cautiousness is developing and is a harbinger of weaker total payroll growth.

In sum, employment growth should slow over the balance of the year, enough to keep consumers from overspending, but not so much as to trigger a recession.

Source: BCA

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