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Real Time Insight

July payrolls increased by 209k vs expectations of around 230k, while the unemployment rate rose to 6.2%. This "miss" isn't too surprising given the ADP one we just had on Wednesday.

I haven't dug into the internals of the report yet to see where the jobs were created or lost so we can discuss that in the comments. What I am more interested in is the forest of steady of job growth that isn't too hot, nor too cold.

I think that is the main take-away here with job gains averaging over 200k per month. As volatile (on a percentage basis) as the data can be (especially with likely revisions), when you step back and look at the 6-month and 1-year averages, you see a certain robustness that speaks of slow, grinding improvement in the economy.

Just like the claims data in steady decline, the jobs are showing up. And this is against the big macro backdrop of three structural trends which inhibit job growth:

1. Technological innovation and productivity which corporations have become even more adept with since the Great Recession

2. Corporations still leaning toward incentives that come from abundant and cheap overseas labor

3. US demographics of an aging population and worker "adaptation" to the jobless recovery ("Who me? No, I'm not looking for a job anymore.")

The big question on the minds of equity and bond investors is...

What does this steady-as-she-goes job growth mean for Fed policy?

Will the Fed really begin to raise rates in the middle of 2015 with only 200k new jobs per month?

And don't tell me they "have to" because they don't. No one predicted we'd have this level of disinflation or low rates 3 years ago so the Fed has acted well by firing big guns and giving them time to work. Then they sit back and watch the data roll in, knowing it takes time for effects to manifest.

Feel free to opine on the Fed or the macro drivers I mentioned. I said 5 years ago that we shouldn't expect to see the unemployment rate back below 5.5% in our lifetimes because of those structural drivers. What say you?

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