​Q3 off to good start with strong job growth and PC demand

ISRAEL - In Brief 28 Aug 2016 by Jonathan Katz

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Initial data for July suggests strong growth in Q3. Job creation remains robust, up 0.5% m-o-m.Unemployment points to near-full employment labor market (4% for ages 25-64).PC growth remains strong in July, with chain store sales up.Service exports are accelerating rapidly (21.9% SAAR in Q2).With strong GDP numbers out two weeks ago and more good news recently, it appears that economic activity is more robust than previously assumed.The BOI composite index is up 0.2% m-o-m in July with upward revision for June to 0.2%This index has failed to predict the strong growth in Q2 of 3.7% SAAR.The BOI likely to revise GDP forecast upwards (currently 2.4% for 2016. We expect rate stability today on more robust growth and slightly higher inflation in July (compared to expectations).We expect growth of 2.7% this year. Strong PC and a tight labor market are likely to support some inflationary pressure ahead, especially in the services. On the other hand the ILS continues to appreciate against the basket. (0.6% last week, 2.5% YTD).We maintain our inflation forecast of 0.6% for the next 12 months.We assume some further ILS appreciation in the short term.Nevertheless, low rates in Israel in 2017 while the Fed tightens should support a slightly weaker ILS.Further competition in some sectors such as the food sector and communications will also dampen inflation. Strong job growth in July In July the number of employed increased by 16.1k, representing growth of 0.5% m-o-m (for the 25-64 age group, closely followed by the BOI). Unemployment remained low at 4.0% (following 3.9% in June) due to an increase in the labor participation rate. Israel is rapidly approaching full employment, as th...