July Non-farm payrolls have posted a print of -131k. Private Payrolls have added +71k, which was slightly below expectations of +90k. This number was helped by an increase in Manufacturing (up 36k) and Education (up 30k) sectors. This strength in manufacturing was likely the result of GM’s decision not to shut down most of its plants for summer retooling, rather than any real payroll growth. Government payrolls posted -202k, which reflects a loss of census workers and, more importantly, a larger-than-expected loss in state and local positions. Confirming earlier economic reports that showed the depth of the recession was deeper than originally believed, prior payroll reports were revised sharply lower. Overall payrolls in June were revised lower -96k, -52k lower in private and -44k for government payrolls. Private services was the big disappointment, coming in considerably lower despite favorable survey data. If private payroll gains remain this weak, it’s not out of the question that August could see another negative reading, as Census still had about 200k temporary hires on their payrolls as of the July survey week.
In the household survey, the Unemployment Rate held steady at 9.5%. However, that does not reflect the true story in the underlying numbers. July saw -159k jobs lost according to the survey and, more alarming, a loss of -570k full-time positions. The one strong figure was the addition of +287k part-time positions. The only positive take-away from today’s employment report seems to be an increase in Average Hours Worked from 34.1 to 34.2. This is typically a leading indicator for improvement in employment as companies work their existing employees more before finally turning to hiring new employees. The uptick puts a little more pressure on employers to hire, but is unlikely to increase significantly before it rises from the current 34.2 hours to the pre-recession norm of around 34.6. The bottom line is that today’s report does nothing to encourage the markets that employment is in fact improving at a faster pace. It is acknowledged that the labor market is not bleeding jobs at this time but the pace of growth needs to pick up to +200k to +300k to represent a change in the unemployment situation in the U.S.
Bulls have now been able to push 10 year notes to a new low for the rally that has been underway for the past few months.
Have a great weekend!