By Denny Gulino
WASHINGTON (MaceNews) – The carefully wrought July rate-cut scenario is now challenged by the blockbuster 224,000 surprise payrolls total for June, with Friday’s report pitting economic pessimists against prospects for renewed strength for the longest U.S expansion in history.
Many forecasters who were confounded by a return to 200,000 plus payrolls growth were agonizing over whether to cling to their narrative of a slowing economy or do a major revamp of their second-half outlooks. Many traders already at holiday retreats were likely regretting leaving their books in the hands of subordinates in the face of the day’s upside shock. Equities futures reflected the “good news is bad news” mentality that initially prevailed, sending futures lower.
In the credit markets, an immediate sharp recalibration with a 6/32s drop in the price of the Treasury 10-year along with a yield up to 2.031%, reflecting the beginning of shaken faith in the end-of-month rate cut. The prolonged inversion of a portion of the yield curve, a major component of what pessimism exists, lessened somewhat.
Even manufacturing showed signs of life, with a gain of 17,000 jobs, also posting the second-highest monthly wage gains. Manufacturing moved very little in the previous four months and so far this year has averaged only 8,000 jobs a month. Last year that average was 22,000.
The category of professional and business services, central to business momentum, roared ahead with a 51,000 increase along with the third-highest increase in hourly wages.
Overall wages rose 3.1% over 12 months, the same as through May, and deepening the mystery as to why in an era of acknowledged full employment, labor scarcity isn’t driving up pay. Back in February, a month when the annual change was a stronger 3.4%, there was nearly universal expectation that the time had finally arrived when workers were to reap the usual benefit of such a low unemployment rate. Then the rate of increase actually began going the other way.
The Bureau of Labor Statistics found the unemployment rate ticking up a tenth to 3.7%, not much of a signal given it is still three-tenths better than a year earlier and within a whisker of a half century low hit in May and April. The broadest unemployment rate, U-6 – which includes discouraged workers and forced part-timers – also rose a tenth to 7.3%, still way under the year-earlier 8.1%.
The underpinnings of the June report were solid, with the tenth increase in the labor participation rate to 62.9% deemed a net positive given the presumed downward pressure of Baby Boomer retirements. Those counted as having dropped out of the labor force was smaller by 158,000, eliminating the source of what is sometimes an argument the numbers were somewhat of a fluke. Those unemployed went up a relatively tiny 87,000, the total employed rose 247,000 – all in the context of a work force that rose 335,000.
Among the very few negatives in the report were upward spikes in the total of so-called discouraged workers and in those only “marginally” attached to the work force.
Health care hiring was right on trend, up 35,000 in June, a tad above the 12-month average of 33,500 a month over the previous year.
Transportation and warehousing was 24,000 above May, above the 13,100 average over 12 months.
The workweek was unchanged as was factory overtime. In manufacturing hours were up a tenth to 40.7 hours.
The June jobs report made May’s weak result look more like an outlier than an inflection point. The latest report revised May’s total down to 72,000 from the original 75,000. April’s and May’s total net revision subtracted a modest 11,000 from the year’s payrolls additions.