The Federal Reserve and the European Central Bank were in the
limelight this week, but the focus is squarely on the U.S. labor
market today, following a surprisingly positive monthly jobs report
this morning.
The question on everybody's mind now will be whether this jobs
report is a game-changer in terms of the QE-centric debate that has
been raging for a while now. In hindsight, the Fed's decision to
stay away from more QE this week seems to have been the right one
after all.
The Fed did acknowledge that the economy was decelerating and
may require additional accommodation. That assessment was
essentially a statement of fact as the pace of job creation had
fallen from the first quarter's 226K monthly rate to the second
quarter's 75K pace.
We know that one data point doesn't make a trend, but will
today's report prompt the Fed to change its tone? Luckily for the
Fed, they will get to see another monthly jobs report before their
next scheduled meeting next month.
The Bureau of Labor Statistics (BLS) reported July non-farm
payroll gains of 163K, above the roughly 100K expected and the 64K
jobs in June (revised down from 80K originally reported). The
revisions trend was mixed -- June revised lower and May revised
higher, with a net negative revision of 6K for the preceding two
months.
Wednesday's ADP report of strong private sector job gains
appears to have been an accurate portrayal of the jobs market. A
total of 172K private sector jobs were created in July, compared to
73K in June, with the government sector suffering job losses of
9K.
Manufacturing added 25K jobs in July, compared to 10K in June,
with fewer layoffs in the auto sector due to seasonal factors
contributing nicely. Service sector jobs totaled 148K, up from 60K
in June and 131K in May. Temp jobs totaled 14.1K, down from 21.1K
in June. The average workweek remained unchanged at 34.5 hours,
while average hourly earnings increased by 2 cents to $23.52. The
July average hourly earnings are up 1.7% from the same period last
year.
This is a good report, provided it's not a one-off fluke. The
month-to-month volatility in the jobs numbers aside, the monthly
average for the year-to-date period is 151K, essentially unchanged
from the 153K for the same period in 2011.
When we look at it this way, the economy's job -reating pace
hasn't changed in a while. Maybe investors will realize that the
economy didn't need Fed support going forward and can sustain
itself. We will find out soon enough whether the market appreciates
a sustainable recovery or more Fed handouts.
The
ISM Services Index
is scheduled for release today at 10:00 AM EST, and is expected to
increase to 52.2 in July after decreasing to 52.1 in June and
increasing to 53.7 in May.
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