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Jobs Report Overshadows Ongoing Trade Concerns

 

Strong Job Growth, Rising Unemployment, and Tepid Wage Growth

Today the Labor Department released its comprehensive employment report for June, displaying mixed results among the different components.  Looking at nonfarm payroll growth, a 213,000 increase in jobs was recorded (beating estimates of +195,000), alongside upward revisions to the prior two months, which added 37,000.  Payroll additions were strongest in professional and business services (+50k), manufacturing (+36k) and healthcare (+25k), while the retail sector reported losses as the brick and mortar era of consumer goods continues to struggle.  Over the past three months, the US economy has added a robust 210,000 jobs per month.

 

 

The unemployment rate unexpectedly increased to 4.0%, rising from the 18-year low rate of 3.8% reported in May.  Much of the jump in the jobless rate was attributed to the 601,000 Americans who decided to enter the labor force last month, many of which were unable to find the job they desired.  Reflecting the rise in people entering the job hunt, the labor force participation rate increased to 62.9% (no changed expected) from 62.7% in the prior month.  A broader measure of the jobless rate, the underemployment rate, rose to 7.8% from 7.6%.

 

 

Representing the largest downside to the report, wage growth continued to climb at a tepid pace during June.  Average hourly earnings rose a marginal 0.2% MoM (+0.3% expected), which yielded a 2.7% increase compared to a year earlier (+2.8% expected).  With the recent rise in inflation, it will be closely monitored as to whether wage growth will be able to produce similar advances.  Separately, the average work week for employees remained unchanged at 34.5 hours. 

 

 

Stocks Finish Week Strong

For the second day in a row, equities avoided the negative sentiment from ongoing trade concerns, especially given today’s implementation of tariffs between the US and China.  All three major US stock indices rose between 0.40%-1.35% during the trading session, again led by gains in the tech sector and with the S&P 500 and Nasdaq hitting their highest levels in the past two weeks.  In rates markets, Treasurys maintained a slight rally throughout the day, as yields/swap rates declined 1-2bps across the curve.  The 10-year note yield finished the week near 2.82%, 3 basis points lower than where it opened on Monday.  The US dollar struggled on the day, declining 0.5% against a basket of major currencies.  In commodities, WTI crude oil futures rebounded from yesterday’s decline, settling 1.2% higher to $73.80/barrel, albeit 0.5% lower on the week. 

 

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