Stocks were down big on Thursday, with the improving economic
backdrop prompting investors to suspect that the Fed will remove
the punchbowl sooner than earlier expected. But this morning's
not-too-hot-not-too-cold jobs reading will likely soothe some of
A total of 209K jobs were created in the economy, below
consensus estimates and what we saw from the payroll processor ADP
on Wednesday. The revisions to the preceding two months were
positive, with June revised to 298K from 288K and May raised to
229K from 224K.
The private sector added 198K in July, down from 270K in June,
with the gains coming particularly strongly from professional and
business services, manufacturing, retail and construction.
Professional and business services added 47K jobs in July, bringing
the industry's total in the last 12 months to 648K. Manufacturing
added 28K jobs, with the auto sector as the biggest contributor.
Even the retail sector's 27K job gains in July had a fair share
from the auto dealer's sector. The strong momentum in the auto
sector has been evident in other economic readings as well, with
auto purchases accounting for a big share of the strong consumer
spending number in the Q2 GDP report earlier this week.
The unemployment rate ticked up to 6.2%. The drop in the
unemployment rate in the past year has been very impressive, with
the current 6.2% level down from 7.3% in July 2013. In the process,
the total number of unemployed has dropped by 1.7 million over the
Average hourly earnings increased to $24.45 from $24.44 in June,
while the average work week remained unchanged at 34.5 hours
for the fifth straight month. Average hourly earnings have gone up
+2% over the past 12 months. The labor force participation rate
remained unchanged at 62.9%. The participation rate hasn't changed
much since April, contrary to expectations that the improving labor
market would prompt previously discouraged workers to rejoin the
labor force and start looking for work.
This is a good, but not a great report. And that should be
reassuring to market participants who are starting to view all
incoming data from the Fed's perspective. The U.S. economy is
improving, but the pace of the improvement isn't fast enough to
prompt the Fed to start raising rates earlier than they would have
otherwise. A non-trivial part of the Q2 GDP growth come from
factors that are simply not sustainable, like the inventory build
and spending on autos. The auto sector seems to be punching above
its weight category even in today's jobs report.
What all this means is that the market's Fed fears are
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