US Payrolls Rise More Than Expected in June, and the Market Is Disappointed

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This week may have been broken up by the 4th of July holiday, but the global financial markets were open even as U.S. markets were being run by skeleton crews. The Department of Labor also released its Employment Situation report on Friday, July 5, 2019. After weakness seen from ADP payrolls and from a prior small business hiring disappointment were already seen, some of the expectations on the payrolls report should have become a bit less aggressive. It turns out that employers kept hiring activity strong in the month of June.

The Department of Labor reported that nonfarm payrolls rose by 224,000 in June and private sector payrolls rose by 191,000 jobs in June. And the official unemployment rate came in with a 0.1% rise to 3.7% for June.

The most recent Econoday consensus estimates were 165,000 for nonfarm payrolls and 149,000 in private sector payrolls. The Econoday consensus estimate was for unemployment to remain flat at 3.6%. The Dow Jones (Wall Street Journal) showed that the consensus estimates from earlier in the week were for nonfarm payrolls expected to be up 165,000 (after just 75,000 in May). The net adjustments to 72,000 nonfarm payrolls in May and 216,000 for April amounted to a net reduction of just 11,000 for the combined prior two months reports.

Friday’s report now made for 105 consecutive months of net employer job gains for the U.S. economy. Wages were also up 3.1% from a year earlier in June as well, although Dow Jones was calling for a 3.2% annual gain in wages coming into that report. Average hourly earnings were up 6-cents from May at $27.90 per hour and the average workweek was flat at 34.4 hours.

Healthcare led the gains with 50,500 additional payrolls in June. While the retail sector contracted, job gains were seen in transportation and warehousing, manufacturing, and construction. All government hiring added another 33,000 jobs in June.

The historically low labor-force participation rate also ticked higher to 62.9% in June, a gain of 0.1% from the month of May. The participation rate remains historically low, and it was as high as 63.2% in February of this year. That low participation rate does still offer some hope that employers can pull would-be workers back into the job market, particularly now that wages have finally risen more than they have been over the last decade.

There is another report which includes the discouraged workers who have given up looking and those who are working part-time for economic reasons who can’t find full-time work. That rose to 7.2% in June from 7.1% in May.

It may seem counter-intuitive that this number’s strength may be bad for the market, but the overall tempo of the Employment Situation for June was just not weak enough that it would light a fire of worry under Jerome Powell to push the FOMC’s rate-cutting button harder and faster than the market might have hoped for.

On last look, the Dow was indicated to open down close to 90 points and the S&P 500 was indicated to open down about 8 points. That said, the Dow’s last close was just under 27,000 and the S&P 500 was close to hitting 3,000 for the first time ever.

The yield on the benchmark 10-year Treasury note also rose by 6 basis points to back above 2.0% on the stronger employment report.

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