Big Jobs Friday surprises markets

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Published Date 8/5/2022

The July employment report, another surprise. Non-farm jobs were expected at 250K with some guessing 200K; as reported jobs increased 528K. Private jobs expected at 220K increased 471K. The unemployment rate expected unchanged at 3.6% declined to 3.5%. Manufacturing jobs thought to be +15K increased 30K. Average hourly earnings were expected +0.3%, increased 0.5%, yr./yr. expected 5.0% increased 5.2%. The labor participation rate slipped to 62.1 from 62.2%. The 10 yr. note yield At 9 am ET increased 8 bps to 2.78%, the 2 yr. note jumped 12 bps, MBS prices fell 65 bps and stock indexes dropped. June non-farm jobs originally reported at 372K revised to 398K; June private jobs revised to 404K from 381K. This report is a shocker when compared to forecasts.

The economy has now recouped the number of jobs lost in the wake of the pandemic. Job gains were widespread, as employers in leisure and hospitality added jobs at a solid clip and payrolls grew in health care and professional and business services. The unemployment rate is at a 50 yr. low and matches the rate prior to the pandemic. Government payrolls rose 57,000 - most since May of last year; Restaurants and bars employment climbed 74,100 - largest in five months; Health care payrolls climbed almost 70,000 - biggest gain since August 2020.

At 9:30 am the DJIA opened -228, NASDAQ -162, S&P -40. 10 yr. note 2.81% +11 bps. FNMA 4.5 30 yr. coupon at 9:30 am -103 bp and -78 bps from 9:30 am yesterday.

The shocking employment report has momentarily cemented the view the Fed is going to keep increasing rates at an aggressive manner. It’s been a debate in markets recently that the economy is slowing, and the Fed would ease off the big increases it has done over the last two FOMC meetings. Adding more evidence, on Tuesday the June JOLTS job openings dropped to 10.698 mil, the lowest in months and May revised to 11.303 mil from 11.254 mil. The rock-solid labor demand that tempers recession worries and suggests the Federal Reserve will press on with steep interest-rate hikes to thwart inflation.

There isn’t anything to add to this extremely strong employment data, if there is anyone that isn’t shocked, they are not telling the truth. Coming up next Wednesday, July CPI.

Source: TBWS

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