Strong Jobs Report Lifts Rates

July jobs report beats forecasts after unexpected hiring boost, spurs bond selloff

The July hiring frenzy resulted in nonfarm payrolls increased by 943,000, while the unemployment rate declined to 5.4%. Three additional states chose to end their unemployment benefits ahead of the September expiration date, helping boost the labor participation rate by an additional 0.1%. The large jump in nonfarm payrolls and a lower unemployment rate fueled speculation over the Fed’s potential tapering timeline, with Fed Governor Christopher Waller recently commenting that a 800,000 to 1 million gain in payrolls in both the July and August jobs reports could kickstart the process as early as September. Data breakdown:

• Nonfarm payrolls rose by +943k vs +938k in June
• Unemployment rate declined to 5.4% from 5.9% in June
• Notable job gains were in leisure and hospitality (+380k), public and private education (+261k)
• Private payrolls rose by +703k vs +779k in June
• Labor force participation rate rose to 61.7% from 61.6% in June

Strong jobs report may move Fed’s taper timeline forward

The July jobs report revealed the labor market is nearing is nearing its pre-pandemic level after hiring accelerated in July. While unemployment levels had risen by over 22.4 million at the height of the pandemic, nearly 17 million of those jobs have been recovered. Average hourly earnings continued to climb for a third month in a row, up 0.4% from just last month and 4% from July 2020. The persistent upward trend has raised concerns of lasting inflation, and, coupled with the employment data, the market might be pulling forward some rate hike expectations. Earlier this week, Fed Vice Chair Richard Clarida had added that a strong jobs reports would be a precondition for a hike, although, Chair Jerome Powell commented that the economy still had “some ground to cover” last week.

10-year Treasury yield end the week on a high note

Employment data has been a major market mover this week – the disappointing ADP private payrolls number pulled the benchmark yield to a February low on Wednesday, only for it to be boosted by yesterday’s jobless claims drop and today’s payroll gains. Treasury yields and swap rates ended the day 1-9 bps across higher the curve – the 10-year UST closing 7 bps higher at 1.30%. Major equity indices ended mixed – the S&P 500 and DJIA added 0.2% and 0.4%, while the Nasdaq declined 0.4%.