Nonfarm Payrolls July 2020

American employers continued their stretch of hiring activity in the month of July. According to the Bureau Labor Statistics, the US economy created ~1.8M jobs last month. The official unemployment rate declined to 10.2%, while U6 came in at 16.5%. Hourly earnings increased 0.2% relative to June and 4.8% since this time last year. Labor force participation declined 0.1% MoM to 61.4%. This is certainly a “good report” for the US economy, but the household survey confirms 16.3M Americans remain unemployed. Meanwhile, the establishment survey shows overall employment down ~8.4% from its reading in February. Leisure and hospitality lead job gains last month adding 592K, though the latest tallies for food services and drinking places remain ~2.6M below February’s figures. Government payrolls expanded 301K and retail added 258K jobs in July. All in all a very sound and encouraging report as we wind through the summer months.

From an economic perspective, the road back to February 2020 is a long one. There will be bumps along the way. Jay Powell and his colleagues at the Federal Reserve know this. In his latest comments at the July FOMC meeting, Fed chairman Powell reaffirmed the Federal Reserve’s cautious stance with respect to the nascent economic recovery. If you recall, the Fed effectively moved short-term rates to zero in the spring, and there they will stay for the foreseeable future. Powell also seemed to nudge Congress in the direction of a stimulus package. The Fed has “lending powers” not “spending powers,” suggesting any fiscal support from Capitol Hill would serve as a valuable complement to the Fed’s accommodative monetary approach.

Speaking of stimulus… it’s a game of trillions in the halls of Congress. At this point, markets seem to think some form of fiscal stimulus is inevitable. Will it be one “T” or more? That is the question. These deliberations will likely carry significant ramifications for the US dollar, interest rates, and stocks. The Fed and Congress have acted with extraordinary speed and force to counter Covid-19’s twin supply and demand shocks. For his part, Mr. Mnuchin of the US treasury has launched an unprecedented borrowing program in response to the virus. However, we are mindful that Fitch recently cut the outlook for US debt to Negative.

Last month’s US manufacturing PMI and retail sales data were encouraging, and additional positive signs seem to be developing in the latest batch of ISM data. Furthermore, the market seems to have shrugged off concerns regarding a 2nd wave of coronavirus infections. While the fall will bring its own set of unique risks, we seem to have taken another step down the road to recovery.

Market Outlook: Bearish USD, Neutral Duration, Neutral Equities

News Release: Bureau of Labor Statistics (The Employment Situation- July 2020)