Yet another impressive jobs report arrived this morning courtesy of the Bureau of Labor Statistics. June hiring activity increased by ~4.8 million. Meanwhile, the official unemployment rate dropped to 11.1% (still stunningly high by historical standards) even as labor force participation ticked up to 61.5%. June jobs were heavily skewed to the services sector, which is a good thing to see as the US is largely an economy driven by consumer activity and services make up the lion’s share of jobs. Of the ~4.8 million jobs created last month nearly 4.3 million were attributable to services. It is important to note that hiring activity was particularly broad-based last month with only mining and utilities showing job losses. Average weekly hours worked dipped slightly to 34.5 and wages dropped 1.2% MoM. The dip in wages is largely attributable to the “type” of jobs being added back- those at the lower end of the income spectrum. To be sure, we still have a long way to go with respect to the recovery, but this is certainly a good sign.
It is an unusually busy econ day as we close out a truncated holiday week. Initial jobless claims came in this morning at ~1.4 million, bringing the 4-week average to ~1.5 million. Meanwhile, incoming data concerning the novel coronavirus continue to warrant caution regarding the pace and nature of re-openings. There are signs, however, that the economic backdrop is improving, and while our models favor the likelihood of a U-shaped recovery over that of a V, the odds are shifting a bit. Therefore, a “strong V” is not our base case at this time and a full recovery still seems rather distant on the horizon. In our view, the latest releases on retail sales, pending home sales, and personal spending are all positive indicators of economic progress, but the path forward remains mired in the uncertainty of consumer and business behavior in this environment.
Notwithstanding the positive surprises we have seen on the economic front this past month, re-openings have been hindered by various viral outbreaks across the United States. Warmer weather has not delivered the desired outcome thus far as it relates to the coronavirus, but efforts to restore the form and function of financial markets have been impressive. In that light, much credit is due Jay Powell and his cohorts at the Federal Reserve. We will be paying close attention to the FOMC and its constituents in the coming days. A collective reluctance for negative interest rates in the US and reticence for yield curve control have been hallmarks of Fed speak lately. We certainly hope the economic green shoots have a chance to take root to support this recovery. Should the coronavirus (and its many economic symptoms) prove more difficult to corral, will the Fed continue to work hand in hand with Mr. Mnuchin and the Department of Treasury to support the recovery or will it look to pass the baton before the possibility of negative interest rates becomes a foregone conclusion?
Market Outlook: Neutral USD, Neutral Duration, Neutral Equities