July Jobs Report and Fate of Infrastructure Bill

In addition to the Friday jobs report, the market will be keeping an eye on the infrastructure proposal being debated in the Senate. There is a decent chance something emerges this week and it will then head to the House for review and vote. The House is unlikely to exact too many changes from what the Senate sends over lest Senate Republicans pull their support. Right now the $550 billion price tag is a fraction of the initial $2 trillion opening bid so the market impact is likely to be limited. Yet, it’s better that movement on the matter happens and attention can then turn to the debt ceiling. That will be another contentious political football and the earlier it begins to be dealt with the better.  The July jobs report will be a key component in assessing how quickly we are returning to  something approaching a pre-pandemic labor market that the Fed (and particularly Powell) are looking for. With 7 million or so jobs still missing from payrolls there is still a lot of ground to make up.  The July expectation is for a gain of 900 thousand jobs versus 850 thousand in June with the unemployment rate dropping from 5.9% to 5.6%.  The broader underemployment rate dipped below double-digits last month to 9.8% but it was as low as  6.8% in December 2019 and that is what the Fed will be looking to get back to before hailing the recovery as complete.

 


Treasuries

Treasury Curve Today Week Change
3 Month 0.04% Unchanged
6 Month 0.04% -0.01%
1 Year 0.06% Unchanged
2 Year 0.18% -0.01%
3 Year 0.33% -0.03%
5 Year 0.68% -0.01%
10 Year 1.23% -0.02%
30 Year 1.91% +0.02%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.12%
6 Mo LIBOR 0.15%
12 Mo LIBOR 0.24%
Swap Rates  
3 Year 0.457%
5 Year 0.774%
10 Year 1.251%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Aug 2 ISM Manufacturing Jul 60.7 61.0 60.6
Aug 3 Factory Orders Jun 1.0% 1.0% 1.7%
Aug 3 ADP Employment Change Jul 675k 650k 692k
Aug 4 ISM Services Jul 60.5 60.5 60.1
Aug 5 Initial Jobless Claims Jul 31 378k 381k 400k
Aug 6 Change in Nonfarm Payrolls Jul 900k 900k 850k
Aug 6 Unemployment Rate Jul 5.7% 5.7% 5.9%
Aug 6 Underemployment Rate Jul NA NA 9.8%
Aug 6 Avg. Hourly Earnings (YoY) Jul 3.9% 3.9% 3.6%

 


Top 5 Events for the Week

August 2—6, 2021

1.  July Employment Report— Friday

While the market remains fixated on the latest virus case counts and the implications for second half growth, the July jobs report will still be a key component in assessing how quickly we return to  something approaching a pre-pandemic labor market that the Fed, (and particularly Powell) are looking for. With 7 million or so jobs still missing from payrolls there is still a lot of ground to make up.  The July expectation is for a gain of 900 thousand jobs versus 850 thousand in June with the unemployment rate dropping from 5.9% to 5.7%.  The broader underemployment rate dipped below double-digits last month to 9.8% but it was as low as  6.8% in December 2019 and that is what the Fed will be looking to get back to before hailing the recovery as complete.

2.  Infrastructure Bill Outlook— All Week

In addition to the employment numbers, the market will be keeping an eye on the infrastructure proposal being debated in the Senate. Just getting a vote to open debate on the bill was a big accomplishment last week and with 67 senators voting to move to debate it seems there is a decent chance something emerges this week. If a Senate bill passes it will head to the House for review and vote. The House is unlikely to exact too many changes from what the Senate sends over lest Senate Republicans pull their support. Right now the $550 billion price tag is a fraction of the initial $2 trillion or so opening bid so the market impact is likely to be limited. Yet, it’s better that movement on the matter happens and attention can then turn to the debt ceiling. That will be another contentious political football and the earlier it begins to be dealt with the better.

3. July  ISM Manufacturing Index—Monday

In addition to the employment numbers, we get another early tell on July in the form of the ISM Manufacturing Index later this morning. The ISM Manufacturing Index is expected to post a solid 61.0 versus 60.6 in June indicating the manufacturing sector is expected to remain in strong expansionary territory which has been the case since June 2020. The latest readings have plateaued around the 60-level A but some of that is from of a lack of parts, namely chips for autos. With those shortages still weighing on the sector a sub-60 print could be possible but looking through those shortages the sector still seems very healthy.

4. June ISM Services Index—Wednesday

After the ISM Manufacturing Index today, the ISM Services Index will try to impress investors on Wednesday with an expected print of 60.5 versus 60.1 in June.  Markets have been waiting for a hand-off of sorts from the goods side of the economy to the services side and the latest GDP numbers did show some of that occurring but with rising virus counts there is some concern the so-called hand-off will be lower and slower recasting less growth than was anticipated just a month ago.  If the July print comes as expected it will be just shy of the all-time high reading of 63.7 set in March.  That seems to suggest the services-side of the economy is still coming back strong.

Source: Bloomberg

5. Weekly Jobless Claims -Thursday

It’s time to check in on the weekly jobless claims numbers as they moved over 400 thousand for two straight weeks after dipping into 3-handle range for the prior three weeks. After significant moves lower in claims this year (they started January around 900 thousand) we seem to be churning some around the 400 thousand level. Pre-pandemic a typical claims number was in the low 200 thousand range. The expectation for claims this week is 378 thousand. Continuing claims too have been churning a bit with the latest level at 3.269 million.  It opened July at 3.265 million. The pre-pandemic level was around 1.7 million. This indicates, just like in the underemployment rates from the jobs report that more ground needs to covered before declaring the labor market back to pre-pandemic levels.


 

Yield Universe

 

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Published: 08/02/21 Author: Thomas R. Fitzgerald