July Jobs Report Beats, Treasuries Remain Unimpressed
The July Employment Report is out and instead of an expected increase of 1.5 million jobs the report found more at 1.8 million. Despite the positive beat, the scope of the damage still to be repaired is daunting. 9.3 million jobs have been created in the last three months versus 22.2 million jobs lost in March and April. The unemployment rate dipped from 11.1% to 10.2%, beating the pre-release expectation of 10.6%. The beat on the headline number has the Treasury market mostly unimpressed, as is usual, with the 10-year at 0.54%, versus 0.50% which was the intra-day low on Tuesday. For the last four months the yield has held a tight range between 0.54% and 0.90% and that seems likely to continue. We talk more about the rate implications in the section below. Also, for the fifth straight month, the BLS noted obvious errors in survey responses, but they are improving. Instead of adding 3% to the official rate if corrected as in prior months, the July correction is estimated at just 1%. We look at some more of the details in the report below.
- For the month, 1.76 million jobs were added to payrolls (1.462 million private sector plus 300 thousand government jobs). That total beat the 1.50 million expectations, but with a wide dispersion of estimates coming in, anything close to the median is a win. While March and April saw huge losses in the leisure/hospitality field, some of those laid off returned as that sector, once again, led all gains with 592 thousand new jobs but the slowdown in reopenings clearly impacted this sector which had been the primary gainer in the May/June bounce. In June, the sector added 2.0 million jobs. The total for service sector job growth was 1.4 million vs. 4.2 million in June. Another sector that was hard hit in March and April, the retail sector in July saw 258 thousand new jobs vs. 827 thousand in June. Health care and social assistance, as you would expect, added jobs as well with 191 thousand vs 463 thousand in June. Goods-producing jobs increased by only 39 thousand versus 211 thousand in June. Construction added 20 thousand and manufacturing 26 thousand jobs. 7 thousand mining jobs were lost.
- The unemployment rate fell from 11.1% to 10.2%, beating the 10.5% expectation, but for the fifth month in a row the BLS noted errors in survey responses, but this month they were way down. If the responses were adjusted they would have added perhaps 1% to the official rate. In prior months the adjustment was estimated to be nearly 3%. The issue revolves around the response to being out of work as either a “temporary layoff” which counts asunemployed or “employed but absent from work.” They noted a huge increase in the latter response, just like in prior months which resulted in the undercount of unemployed, per the BLS. The Household Survey—which is used to generate the various employment ratios— reported that 1.4 million persons left the unemployment rolls (16.3 million versus 17.7 million) while 62 thousand persons left the labor force, an inconsequential amount.
- The underemployment rate (unemployed plus part-time workers wanting a full-time job and those wanting a job but not currently looking) fell from 18% to 16.5%. The Fed will want to see this rate back in the mid to high single-digits before declaring victory and considering raising rates.
ADP Employment Report Highlights Slowing Employment Sectors
While we received the big daddy of employment reports this morning, on Wednesday the ADP Employment Change Reported some disappointing numbers and also showed payroll gains slowed in July from the prior month, The 167,000 increase in total business payrolls trailed all estimates in a Bloomberg survey of economists with the median estimate at 1.2 million, so a sizeable miss. The sharp slowdown in the pace of gains is consistent with other reports that show the labor market in danger of sliding back amid a pickup in coronavirus cases. The graph below shows the sectors that continued to do well and those that shed jobs: four sectors in all. As an aside, we’ve now seen three straight months where the BLS report has beat ADP by well over a million. One thinks that disparity will have to be resolved soon.
10-Year Treasury Yield Breaks 4-Month Range
After spending more than four months stuck in a range between 0.54% and 0.90% the 10-Year Treasury finally broke below the range this week reaching 0.50% intra-day on Tuesday. The yield move has been mostly methodical which lends credence that there might be more to come. The decrease comes too as equities have staged a rally this week, pushing within 2% of the all-time S&P 500 high. While the range break is notable, there remains plenty of support levels just above as noted in the graph. Moving average and Fibonacci levels represent significant support so should the Treasury yields decide to head higher, those increases should be grudging at best as they work through several layers of support.
|Treasury Curve||Today||Chg Last Wk.||LIBOR Rates||Today||Chg Last Wk.||FF/Prime||Rate||Swap Rates||Rate|
|3 Month||0.09%||UNCH||1 Mo LIBOR||0.15%||-0.01%||FF Target Rate||0.00%-0.25%||3 Year||0.205%|
|6 Month||0.11%||UNCH||2 Mo LIBOR||0.24%||-0.01%||Prime Rate||3.25%||5 Year||0.274%|
|2 Year||0.11%||UNCH||6 Mo LIBOR||0.30%||-0.01%||IOER||0.10%||10 Year||0.547%|
|10 Year||0.54%||-0.01%||12 Mo LIBOR||0.44%||-0.01%||SOFR||0.09%|