July Employment Report Continues the String of Strong July US Economic Data

The July Employment Report extended the string of strong July US economic data.   Stocks should move up for at least a couple of weeks, possibly making new highs, as the post-Q2 GDP sell-off earlier this week looks to have been misguided.  Treasuries should remain under pressure, as the possibility of a September Fed rate hike comes back into focus on the screens.

Here are a few points about the Employment Report:

1.  The +255k increase in Nonfarm Payrolls looks to have been widespread, although most of the gain was in the low-productivity business services and health care.  So, the gain may not translate into strong Q316 GDP Growth.

       a.  The cyclical sectors -- manufacturing,  construction and retail -- posted modest job gains.  Interestingly, much of the gain in manufacturing was in the motor vehicle sector -- joining the strength in July Motor Vehicle Sales in undermining the fears of weakness stemming from the Ford earnings miss a week ago.  Also interestingly, jobs in new residential construction was flattish, joining the weakness in June Construction Spending in raising doubts about the strength of this interest-sensitive sector.

      b.  To be sure, some of the July Payroll strength could be a continuation of the catch-up from May that was evident in the jump in June Payrolls.  So, today's report is far from being the final word on Q316 economic activity and labor market.

2.  The uptick in the Nonfarm Workweek to 34.5 Hours from 34.4 Hours adds to the strong implications of the Payroll gain regarding a pickup in economic activity at the start of Q316.

3.  The Unemployment Rate raises questions about whether the Payroll strength will translate into a sharp pickup in Q316 Real GDP Growth, however.

        a.  The Rate was steady at 4.9%,  keeping it equal to the Q216 average -- suggesting near-trend GDP Growth (sub-2.0%).

        b.  The unrounded Rate was 4.88%, up slightly from the 4.86% Q216 average.

        c.  U-6, the broadest published measure of un-/under-employment edged up to 9.7% from 9.6% in June, putting it back to the April-May level.

4.  The 0.3% m/m jump in July Average Hourly Earnings likely overstates the trend in wage inflation.

        a.  The jump is an offset to the soft 0.1% m/m increase in June.

        b.  Calendar considerations could have been responsible for the high print, as they pointed to a 0.3% m/m gain.

         c.  The y/y was steady at 2.6%.