July payrolls surprised to the upside with a gain of 255k, 75k more than expected. The private sector beat vs the estimate was 47k. Thus, government workers were a main boost to job growth. The private sector added 217k jobs vs the estimate of 170k and the two prior month revisions basically netted out to zero. For the headline, the two prior months were revised up by 18k. The service side added 201k with goods producing adding 16k. Manufacturing jobs grew by 9k vs the estimate of 4k. Positively, the household survey saw a nice bounce of 420k jobs after seeing just 67k in June and with the labor force increasing by a similar 407k, the unemployment rate held at 4.9%. The participation rate rose one tenth to a still anemic 62.8% as did the employment ratio to 59.7% and the U6 all in rate rose one tenth to 9.7%. The workweek improved by one tenth to the most since January and wages were up by .3% m/o/m and 2.6% y/o/y. That y/o/y gain matches the most since ’09 but average weekly earnings still remains modest at 2.3%.
Bottom line, job growth in July was clearly better than feared and brings the 3 month average to 190k and the 6 month average to 189k. This compares to worries about a new 150k trend that was seen last month. The private sector is where the trend remains around 150k however as the 3 month average for this most important part of the economy is at 158k vs 169k over the past 6 months and vs 221k in 2015 and 240k in 2014. Thus, the slowing trend remains the same. We must keep in mind that IF the US economy is now on a below 2% trend and corporate profits and margins continue to remain challenged, we should not expect an acceleration in job growth. Also remember that this key data point is typically a lagging indicator. I cheer today’s better than expected report but the recent trend is unaltered if we look at the private sector.
Rate hike odds by year end shifted from 32% to 40% after the jobs number. For September it went from 18% to 22%. The 2s/10s spread is narrower by 1 pt. I believe these modest expectations notwithstanding today’s data continues to point to the quote I took from a friend in referring to the Fed as the Boy Who Cried Rate Hike.