July Payrolls Surge Unexpectedly Higher

If you ever wondered if the economists and market participants can get it very wrong, look no further than Friday’s exceptionally stronger than expected payrolls report. The U.S. Department of Labor reported that nonfarm payrolls rose by 255,000 in July. The private sector payrolls were up by 217,000.

What matters here is this blew out all estimates. Bloomberg was calling for 185,000 in nonfarm payrolls and 175,000 in private sector payrolls for July. Econday’s highest estimates were 215,000 on nonfarm and 210,000 for private sector payrolls.

And oddly that gain was not even at the expense of the prior month. June’s exceptionally strong 287,000 nonfarm payrolls was revised higher to 292,000 and that makes the weak numbers from May look more like a rounding error.

Another issue to consider here is that the PMI and ISM data released this weak was not at all pointing to a very strong number. Even ADP had us braced for a directional down number, well under 200,000. The government job gains of 38,000 skewed this number for July, but not enough to overlook the strength of this report.

Friday’s Bureau of Labor Statistics report also included a gain in the laborforce participation rate — by 0.1 points to 62.8%. That kept the unemployment rate static at 4.9% rather than what was expected be 4.8%.

Wages even showed a stronger report, up by 0.3% (up eight cents to $25.69) in the hourly earnings report. That figure is now up 2.6% from July of 2015.

Will this number force the Federal Reserve to raise interest rates? Maybe this puts the September FOMC meeting closer to a live meeting. Ahead of this report there was something close to a 10% to 15% chance of a rate hike. That appears to be closer to 20% now, but that may change as the initial reactions are often different several days later.