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What to expect from the July jobs report tomorrow

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US jobs report expected to show solid job gains, but….

The US jobs report will be released at 8:30 AM ET tomorrow.  Recall from last month the expectations were for a 700K gain. The actual gain came in at a stronger 850K.

What is expected tomorrow?

  • Nonfarm payroll is expected to add 870K new job. The level of jobs is still 6.7M shy of the pre-pandemic levels.  Adding 870K would continue the whittle away of that gap, but additional incremental jobs could become harder and harder. 
  • The unemployment rate is expected to fall to 5.7% from 5.9% last month. Last month, the unemployment rate was expected at 5.7%.  The pre-pandemic unemployment rate was at 3.5%
  • The participation rate came in at 61.6% in the June report. That is much lower than the 63.2% pre-pandemic (from Feb 2020).  A lower participation rate has an impact of increasing the unemployment rate all things being equal
  • average hourly earnings are expected to show a 0.3% gain. Last month the earnings also rose by 0.3% which was as expected. The average hourly earnings YoY came in at 3.6% in June but is expected to rise to 3.9% this month.  
  • The underemployment rate (U6) employment rate came in at 9.8% last month versus 10.2% the previous month. The pre-pandemic rate stood at 7.0%

What have the other employment measures shown going into the BLS report?

  • The initial jobless claims during the week of the BLS survey week spite higher to 419K, but that was not much different vs the prior month survey week of 412K. The jobless claims did move down to a low of 360K between the last report and this months report. The 360K low was the lowest post-Covid level. Seasonals and the auto slow down/retooling could also be an impact that made the numbers worse than expectations. Also there was rumblings about the attempt to fraudulently gain unemployment payments and that a number of the applied for claims were rejected i.e., the number is therefore artificially high. 
  • ADP showed a job add of 330K on Wednesday which was well short of the expectations of 695K.  ADP noted that the July data represented a marked slowdown vs Q2 values.  
  • ISM services employment component rose to 53.8 from 49.3 in June
  • ISM manufacturing employment component also rose to 52.9 versus 49.9 in June

The wild card is the ADP report. Will the nonfarm payroll follow that measure, or will it blaze its own trail and follow up the June strong surprise, with another solid report.  

Anecdotal stories do tend to follow along the lines of job needs > the supply of workers. 

However, as the supplemental $300 unemployment benefits fade away (the final states will stop receiving federal payments at the start of September. Many states have already stopped the supplemental payment voluntarily), the thought is that it would open up a new supply of workers who get off the couch and get a job (more incentive to go back to work).  School reopening (assume it happens) could also lead to more workers reentering the labor market.

Fed’s Clarida alluded to this phenomenon yesterday when he said the next few months will tell him much more about the employment trends.  

The employment statistics are always a bit of a crapshoot. Moreover, when you deal with high numbers like 850K, the margin of error can be +- a couple hundred thousand (vs +-25K to 50K).  That has the possibility of spooking the market simply because of the “large” miss. 

 

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