Financial Professionals

Market Insights

A A A

July Nonfarm Payrolls

08/02/2013

On Friday morning, August 2, the July Nonfarm Payroll report was released:

  • The headline figure was +162,000, down from June’s +188,000 and below consensus estimates of +185,000

  • Private payrolls rose to +161,000, down from June’s +196,000 and below consensus estimates of +195,000

  • The unemployment rate fell to 7.4% from 7.5% in June as 240,000 people left the labor force, bringing the labor force participation rate to 63.4% from 63.5% in June

  • The average monthly headline gain for the past 12 months is +186,000 (Figure 1)

  • The average monthly headline gain for 2013 is now at +192,000 (Figure 2)

  • The headline figure for June was revised lower, from +195,000 to +188,000

  • Private payrolls for June was revised lower, from +202,000 to +196,000

  • The underemployment rate fell to 14.0% from 14.3% in June

  • Manufacturing jobs gained +6,000, ending a four-month streak of manufacturing job losses

  • Average hourly earnings were -0.1%, month on month, below consensus estimates for +0.2%. For June average hourly earnings rose +0.4%, month on month

  • Average weekly hours worked fell to 34.4 from June’s 34.5, again below the consensus estimate of 34.5

 Additional U.S. economic data released today:

  • June Personal Spending rose +0.5%, matching the consensus estimate of +0.5%. May’s previously reported +0.3% was revised lower to +0.2%

  • June Personal Income rose +0.3%, below the consensus estimate of +0.4%. May’s previously reported +0.5% was revised lower to +0.4%

  • June PCE Deflator (price index) rose +0.4%, matching the consensus estimate and improving on the previous month’s +0.1% month-on-month gain.

  • June PCE Core rose +0.2%, better than the consensus estimate of +0.1% and the previous month’s +0.1% month-on-month gain.

  • June Factory Orders rose +1.5%, below consensus estimates of +2.3%. The previous month’s +2.1% figure was revised higher to +3.0%

  • The July ISM New York Index rose to 67.8 from 47.0 the previous month

COMMENTARY

Friday morning’s July labor report is filled with disappointment, both directly in the composition of the report and for its inability to provide “final clarity” for the prospect of FOMC tapering at its September meeting.

However, the recent improvement in manufacturing figures, as well as continued housing strength, balance out the disappointing labor data.

Keep in mind, I suspect July hiring was negatively impacted by the poor performance of the June equity and bond markets. July has witnessed significant equity strength and less bond volatility. Corporations might be operating in August with more confidence than they experienced in July.

Either way, September’s early economic report releases are now elevated in importance. The FOMC will have another “look” at U.S manufacturing and employment just two weeks prior to the September 17-18 meeting.

  • ISM Manufacturing – Tuesday, September 3
  • August Nonfarm Payroll report – Friday, September 6

 I expect those September reports must reveal broad-based weakness in order to reverse the FOMC’s private intention to reduce its monthly asset purchase program from $85 billion to somewhere between $60 and $70 billion.

Figure 1: U.S. Nonfarm Payrolls, Prior 12 Months Average +186,000

Source: Bloomberg

Figure 2: U.S. Nonfarm Payrolls, 2013 Monthly Average +192,000

Source: Bloomberg

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.