Nonfarm Payrolls July 2021

Now, that really is more like it! The US economy added 943,000 jobs in July. Moreover, revisions to previous reports (May and June) indicate an incremental increase of 119,000. Both U6 and the official unemployment rate meaningfully declined by 0.6% and 0.5% respectively relative to June. However, we would be remiss if we did not mention that unemployment remains above 5% on a national basis and U6 is still greater than 9%; we are still a long way from pre-pandemic levels for both of those labor market indicators. Back to today’s figures, hourly earnings for American workers jumped 0.4% MoM and 4.0% YoY with hiring in leisure and hospitality and education leading job gains! On the other hand, construction jobs essentially flatlined last month. All things considered, July was without question a strong month for the jobs market.              

Elsewhere in the domestic economy, it was a rather lackluster month however. Essentially, we still have the same trouble spots. Construction spending remains soft, declining 0.3% last month. New home sales continue to fall at a precipitous rate (-6.6% MoM).  The silver lining here is that new and existing home sales are essentially back inline with pre-pandemic levels, though well off their torrid pandemic-era pace. Meanwhile, according to the venerable Institute of Supply Management, manufacturing and non-manufacturing activity indicate that the domestic economy remains on solid footing. US employers continue to signal that demand for workers is the strongest on record with JOLT’s coming in at ~9.21MM last month. All in all, it’s not the best backdrop, but it certainly is not the worst. So, do we need more stimulus?

Well, it appears more is on the way. After months of back and forth, it appears Congress will approve a spending program targeting “infrastructure and investment.” The proposed $550B bill will allocate funds for the improvement of roads, bridges, and other essential projects, which will include enhancements to existing water and internet infrastructure. Of course, there are many pieces to this puzzle. So, if you would like the details, here is a link for the latest from the White House. In addition, there is a new proposal circulating on Capitol Hill calling for guaranteed income… we will be watching closely to see what comes of that.

Back in the real world, Americans continue to wrestle with stronger than expected inflationary pressures and a relatively high unemployment rate in the immediate term. Core CPI and PPI increased in July by 0.9% and 1.0% respectively MoM. Chairman Powell of the Federal Reserve remains adamant that these inflationary forces will abate and sees little reason to recalibrate the Fed’s stance on monetary policy. Meanwhile, the whispers regarding tapering asset purchases are growing louder. The Fed’s Vice-Chairman, Richard Clarida, suggested Wednesday that an announcement regarding slowing the pace of balance sheet expansion could come sometime this year. Well, there isn’t much time left on the clock if that is the case! Again, the Fed is NOT talking about ceasing purchases this year; it is simply considering a path forward to reduce the pace of purchases from the current rate of $120B per month! For those keeping score at home, the Fed’s balance sheet is currently valued at ~$8.2T. The vice chairman went on to suggest that the Fed could move off of 0% short-term rates in 2023. Of course, the central bank is not on a “preset” course, AND 2023 is certainly a long way off! There will be plenty of information to sift through between now and then.                 

Market Outlook: Neutral USD, Neutral Duration, Neutral Equities

News Release: Bureau of Labor Statistics (The Employment Situation- July 2021)