United States
ADP said 158k private sector jobs were created in June, 30k less than expected and May was revised down by 23k to 230k. Remember that last month the estimate for the May report was 180k and it printed 253k. Then two days later the BLS delivered a print of 147k for the private sector. Thus, the monthly correlation between ADP and the BLS is very mixed. Friday’s estimate is 170k for the private sector.
Smoothing out ADP’s monthly figures puts the 6 month average at 222k vs 181k in 2016. This is also completely at odds with the BLS which has the 5 month year to date average at 161k vs 170k last year. Either ADP will get revised down or the BLS numbers will be revised up or both.
Digging into the ADP report saw ZERO job growth in the goods producing sector as an increase of 6k in manufacturing was offset by job declines in construction and natural resources/mining. Thus, all net jobs created was in the services side which always produces most of the jobs anyway.
Bottom line, as stated above, don’t extrapolate from ADP what the BLS will say tomorrow. That said, enough jobs are being created each month to continue to lower the unemployment rate and that seems to be the predominant impetus for the Fed to continue with their tightening.
Notwithstanding the jobs miss, the 10 yr yield is at the high of the morning at 2.38% because European yields are also at the highs of the day. The US 2 yr yield is at the highest level since November 2008. Both the German and French 10 yr yields are up 9-10 bps and Italian and Spanish yields are higher by 11 bps. The UK gilt yield is up by 6 bps, the same rate of gain as seen in the US.
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Initial jobless claims for the week ended July 1st totaled 248k, 5k more than expected and up from 244k last week. The 4 week average was up a touch at 243k vs 242k last week. Of note, continuing claims, delayed by a week, rose for the 5th straight week. This is the longest streak since 2009 but has only totaled 37k. Bottom line, the pace of firing’s remain low because of a dearth of high quality labor supply. I’ll wait to read too much into the recent creep up in continuing claims.
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Coincident with the rise in long end yields, the average 30 yr mortgage rate rose 7 bps on the week to 4.20%, the biggest one week move in 3 months. Refi’s only fell .4% w/o/w but after falling by almost 9% in the week before and are down 46% y/o/y. Purchases rose 3.1% w/o/w after 3 down weeks. The y/o/y gain is now at 6.3%. I continue to believe that the housing market has reached an inflection point in that buyers are becoming much more sensitive to the persistent 5-6% price gains and have begun to respond.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.