Friday, July 5, 2013
This morning's strong jobs report reconfirms that the labor
market is steadily improving, which means that the Fed could
afford to take its foot off the QE paddle later this fall. The
bond market seems to be responding to the changed 'taper' outlook
by pushing yields higher, though the stock market doesn't seem to
be overly concerned, at least at this stage. Part of the
stock market momentum this morning is likely a response to
comments from Mario Draghi, who vowed on Thursday to maintain the
ECB's easy-money policy for an extended period and not to follow
what the U.S. may or may not do in the coming months.
But irrespective of the market's reaction, there are no two
opinions about this morning's jobs report. It is an all-around
positive report, with not only the 'headline' number coming in
better than expected, but prior month's numbers revised higher
and the hourly earnings data coming in very strong.
June non-farm payrolls came in at +195K vs. expectations of about
+160K and May's +195K level (revised higher from 175K). The
consensus estimate did not rise much following the better than
expected report from ADP on Wednesday. The jobs report has been
of intense focus for investors in recent days given the market's
ongoing focus on the Fed's QE program.
The revisions trend was positive, with May revised to 195K (vs.
+175K originally) and April's raised to +199K (vs. +149K), for a
net increase of +70K for both months. The unemployment rate at
7.6% and the average workweek at 34.5 hours remained unchanged.
Surprisingly, average hourly earnings increased +0.4% in June vs.
up +0.1% in May. The labor force participation rate ticked up to
63.5% from 63.4% in May.
Private sector jobs totaled 202K in June, modestly down
from upwardly revised 207K in May, but up from the upwardly
revised 188K in April; the government sector lost -7K jobs in
June vs. - 12K in May. The private sector gains were concentrated
in leisure and hospitality, professional and business services,
retail trade, healthcare, and financial services.
Leisure and hospitality added 75K jobs in June, up from the
year-to-date monthly run rate of 55K which is roughly double the
pace of 2012. Professional and business services added 53K jobs
in the month, bringing the industry's 12-month tally to 624K
(Temporary jobs were up +9.5K in June vs. +23.6K in May).
Construction jobs were up +13K in June after increasing 7K in
May, while manufacturing as a whole lost -6K jobs in June after
losing -7K the month before.
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This report effectively guarantees that the Fed will move towards
'tapering' its QE program at the September meeting. The early
reaction from the stock market doesn't seem to be negative, but
that could very well be a response to the announcement from Mario
Draghi on Thursday, where he committed to keep loose monetary
policy for an extended period. The bond market's initial reaction
appears more on the mark and reflective of greater odds for Fed
'tapering' later this fall.
Director of Research