KEY DATA: Payrolls: +287,000; Revisions: -6,000; Wages: +0.1%; Unemployment Rate: 4.9% (up from 4.7%)
IN A NUTSHELL: “Faltering labor market, what faltering labor market?”
WHAT IT MEANS: As it is said about the weather, so it should be said about some of the economic data: If you don’t like it, wait a minute (or a month). After the May jobs numbers came in, there was concern that the economy and labor market were faltering. My comment then was: Take a deep breath, breathe slowly and don’t panic – yet. Guess What? Conditions changed. Payroll gains in June were robust and were across the board. Over 62% of all sectors reported gains, a pretty solid number. That is important because the Verizon strike settlement added back roughly 30,000 workers that were lost in May. This was not a strike-ending driven number. There were strong increases in health care, hospitality, manufacturing and even government. Trucking and motor vehicles were down and construction was flat, but I am not sure why. If there was one disappointing number, it was the hourly wage gain. It rose modestly. While the annual increase is slowly accelerating, it is not great enough to add significantly to income or make workers happy.
As for the unemployment rate increase, it was not unexpected due to the sharp decline in May. It was a bit more than hoped for. Still, it remains under 5%. With the labor force and participation rates rising, it is likely the rate will decline only slowly the rest of the year. Nevertheless, I expect a 4.5% rate – or less – to print this year. Interestingly, the infamous U-6 rate, which so many use to argue the unemployment rate is high, fell in June to 9.6%. During the previous expansion, the rate averaged 9.1%, so while it is still a bit high, it is not way above what it should be. Indeed, when you consider that the trend toward employing part-time workers has accelerated over the past decade, this so-called “real” unemployment rate may not be high.
MARKETS AND FED POLICY IMPLICATIONS: Investors have every good reason to breathe a sigh of relief today, but only one hurdle, a slowing labor market, may have been cleared. And, if you consider that the average job increase for the past three months was only about 150,000, we are not talking about a lean, mean job machine. I would like to see that average rise to 175,000 or more. In addition, there still is Brexit to be navigated. What concerns me is that while small and mid-sized businesses may be adding employees like crazy, timid large-corporate CEOs are taking a wait and see attitude. It is hard to generate lots of new jobs with large business executives focusing on the world economy. As for the Fed, this changes nothing. I suspect the members will say it is nice the labor market is not a disaster, but then start talking about the world economy. This is a glass half-empty group that changes its focus to the next issue as soon as the last one is resolved. I said yesterday that I didn’t think a strong jobs report would change much at the Fed and now that we got one, I still believe that is the case. Indeed, don’t be surprised if Chair Yellen mentions the slow wage growth as a way to say that there is still slack in the labor market. So, let’s enjoy this number but don’t think it will sway many people’s thoughts about the economy or when we will get the next rate hike.