The markets have been a little choppy this week but have continued on an overall bullish trend. This morning Jobs Report came in hot, adding 943K jobs in July, which is nearly 100k more than forecast. I have included the complete report in this email.
In case you missed it, the CDC extended the eviction moratorium despite the fact it was ruled unconstitutional. Reading between the lines, the Biden administration is playing the court game and fully expects it to be overruled again but will give them a few months.
Investors should be watching real estate investments such as REITs that have exposure to a dip in the real estate market. I think it could hit as early as February.
In addition, we officially passed the debt ceiling, but Congress is out for the Summer. It is likely that they will try to push a massive increase with the infrastructure bill when they get back.
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The U.S. Jobs Report Beat Estimates Across the Board
The July jobs report beat estimates on every front, with big upward revisions in the major components that reversed hours-worked weakness in the June data. Payrolls beat estimates, led by the education component of government payrolls but also via stronger than expected service sector jobs.
The workweek stayed firm in July after a June boost, leaving solid hours-worked gains in both months, and wages rose sharply for a fourth consecutive month. The household data revealed a civilian jobs gain of 1,043k that broke the million mark, and the jobless rate set a new low of 5.39%.
For the report specifics, we saw a 943k nonfarm payroll gain that beat estimates after 119k in upward revisions, with an expected 44k goods sector rise alongside a big 659k service job gain that was led by a 380k surge for the leisure and hospitality component.
We now have nonfarm payroll gains of 938k (was 850k) in June and 614k (was 583k) in May. We saw a 703k private payroll rise after 146k in upward revisions. Government jobs rose a hefty 240k after -27k in downward revisions. We saw a huge 231k rise in state and local education employment that more than accounted for the July government increase.
The workweek sat at 34.8 for a third month (was 34.7 in June), after 34.9 in March and April, and 34.6 in February. We saw a 21-year high of 35.0 in January that was seen through much of 2000.
Low-paid workers who often have shorter workweeks are returning to work, hence depressing both the workweek and wages.
We saw a solid 0.6% hours-worked rise that and a big boost in the June gain to 0.6% from 0.2%, following 0.2% gains in the prior two months. For the goods sector breakdown, we saw gains of 27k for factories, 11k for construction, and 6k for mining.
The goods sector revealed a 0.8% hours-worked gain, with increases of 0.7% for factories, 0.9% for construction, and 0.3% for mining. We saw a 0.4% hours-worked rise for the private service sector. The 0.4% July hourly earnings rise followed big gains of 0.4% (was 0.3%) in June, 0.5% (was 0.4%) in May and 0.7% in April.
The y/y hourly earnings rise climbed to 4.0% from 3.7% (was 3.6%) in June, 1.9% in May and 0.3% in April. The y/y climb is only partly due to base effects, given an 8.2% y/y peak in April of 2020 that was mostly unwound over the ensuing months.
The household data beat assumptions, alongside a jobless rate drop. We saw July gains of 1,0430k for civilian jobs and 261k for the labor force, following respective June swings of -18k and 151k.
The jobless rate fell 5.4% (5.39%) from 5.9% (5.89%) in June and 5.8% (5.79%) in May, versus a 14.77% peak in April of 2020. We saw a 3.55% low from the last cycle in December of 2019 and a 9.98% prior cycle-high in October of 2009. The labor force participation rate rose to 61.7% from 61.6% in May and June, and 61.7% in April, versus a 48-year low of 60.2% in April of 2020 that marked the lowest readings since February of 1972.
Payrolls have now reclaimed 75% of the jobs lost in March and April of 2020. Hours-worked have reclaimed a larger 84% of the drop. The larger workweek surge means that hours have been recouped by fewer workers working longer hours. The GDP rise through Q2 has reclaimed 108% of the Q1-Q2 drop as we marked a new all-time high, thanks to an extra productivity boost.
Today’s data raised prospects for the other July reports, and suggest some upside risk for our Q2 GDP growth estimate to 7.0%, following no net revision assumed for the 6.5% Q2 clip. The current mix leaves a likely Q4/Q4 2021 GDP gain of 6.3%.
Despite strength in today’s data, we still won’t expect any policy changes or details on the timing of Fed tapering to emerge at the September 21-22FOMC meeting, and downward growth revisions and upward inflation adjustments are still likely for 2021. We will continue to assume that the Fed makes a November or December announcement about tapering that starts in January and extends through 2022.
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