U.S. Nonfarm Payroll Report


Just this past week, my Q3 playbook "State of Confusion" was released. Within it, I suggest investors need not focus on "will" the Federal Open Market Committee taper but "should" they taper. Since May 22, the markets have had plenty of time to allow the FOMC Chairman’s surprising taper comments to sink in. Yes, tapering will occur much sooner than expected. On the other side of Labor Day – whether at the September 17, October 29, or December 17 FOMC meeting - tapering will occur.

Friday’s June U.S. nonfarm payroll report is one of many critical data releases over the next few weeks that will provide evidence for whether the FOMC "should" taper. Let’s take a look at the overall numbers, which I expect should be interpreted as scoring one for the FOMC and its better-than-consensus growth expectations.

June Nonfarm Payrolls

  • June nonfarm payrolls rose +195,000, better than the forecasted +165,000 and unchanged from last month’s +195,000
  • May nonfarm payrolls were revised higher from +175,000 to +195,000
  • June private payrolls increased +202,000, better than the forecasted +175,000 and lower than last month’s +207,000
  • May private payrolls were revised higher from +178,000 to +207,000
  • The unemployment rate held unchanged at 7.6%
  • The underemployment rate rose from 13.8% to 14.3% in June
  • The labor force participation rate rose to 63.5% from 63.4%
  • Average hourly earnings rose +0.4% month on month, exceeding the +0.2% consensus estimate
  • Average hourly earnings on a year-on-year basis have now risen +2.2%
  • Manufacturing employment remains weak at (-6,000) in June following May’s (-7,000) loss
  • Service jobs were strong with business services increasing +53,000, leisure +75,000, retail trade and transport +45,000, financial +17,000, construction +13,000 and health care +24,000
  • Over the past six months, 1,211,00 overall jobs have been created, a monthly average of 201,833
  • Over the past 12 months, 2,293,000 overall jobs have been created, a monthly average of 191,083
  • Over the past 36 months, 5,808,000 overall jobs have been created, a monthly average of 161,333

Commentary: In the wake of Friday’s labor report, the yield on the U.S. 10-year Treasury (Figure 1.1) rose to 2.74%, its highest level since August 2, 2011. The U.S. dollar index (Figure 1.2) rose to 84.449, its highest level since July 3, 2010. The appreciation in both highlights the changing dynamic within the market that is ending the three-year "search for yield" investment theme. Within the Q3 playbook, I point out that on May 5, 2013, the yield for a U.S. 10-year Treasury was 1.74% -- and 250 out of 500 stocks in the S&P 500® had a greater dividend yield. With a 100-basis point move higher and Friday night’s close at 2.74% for the 10-year, the number of SPX companies with a higher yield was cut in half to only 125 companies. 

Figure 1.1 U.S. 10-Year Treasury, January 2011 to Present
7-8 Terranova Figure 1.1
Source: Bloomberg

Figure 1.2 U.S. Dollar Index, January 2010 to Present
7-8 Terranova Figure 1.2
Source: Bloomberg

Past performance is not a guarantee of future results.

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