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Jobs Data Misses, but Remains Strong

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Thursday, July 5, 2018

Welcome back from your Independence Day holiday — we sincerely hope you’ve kept all your digits intact for another year. This morning, we jump right back into new jobs data: specifically the ADP (ADP - Free Report) private sector payroll report and Initial Jobless Claims.

Situated prior to Friday’s government jobs survey, the Bureau of Labor Statistics’ (BLS) non-farm payroll report and Unemployment Rate, today’s ADP numbers keep the narrative of a robust U.S. labor market, even as the headline number came in short of expectations. A total of 177K private-sector jobs for the month of June was below the 185K consensus estimate, and the second-lowest tally year to date. That said, the upward revision to May’s numbers — +11K to 189K overall — more than made up the difference.

The ration between Services and Goods also remained consistent, at roughly 80/20: 29K new goods-producing jobs last month contrast with the 148K non-goods (services). We will see further services-related data after the opening bell today, both with Markit PMI and ISM reads expected to continue demonstrating overall strength.

Medium-sized companies (between 50 and 499 employees) brought in the lion’s share of new jobs for June with 80K; large firms grew by 69K and small companies created 29K new positions. By sector, we revert to the multi-year recovery mean a bit: Education/Health Services and Leisure/Hospitality reported the most new jobs at 46K and 33K, respectively, while Construction’s 13K and Manufacturing’s 12K were further down the list.

The estimate for tomorrow’s non-farm payrolls headline is roughly 195K, which is still more or less double the rate of labor force growth in the U.S. Meaning as long as we’re bringing in more than 100K jobs per month, we continue to enjoy an historically strong domestic employment situation. And we haven’t seen that few jobs created since last summer’s massive hurricane season; that said, the last time we reached 200K was back in February. One of the conditions of long-term employment recovery is that it tightens noticeably the higher it goes.

That’s certainly the position we continue to see ourselves in now. A headline Unemployment Rate of 3.8% from May is expected to stay roughly in-line, which is again historically low. Important metrics to look at tomorrow will be the U-6 (aka “real unemployment,” which is sub-8% — also extremely low) and Average Wage Growth. We’ve seen wages gradually gain traction in this tightened labor market, with a typical rise of late around 0.3% month over month. Should this begin to ratchet up higher sooner, it would be a key indicator of inflation for the U.S. economy.

Also this Thursday, Initial Jobless Claims data has been released. This too has come in a tad worse than anticipated: 231K from the upwardly revised 228K the previous week. We had been experiencing almost unheard of jobless claims rates sinking toward 200K per week, but it’s possible those rates are not fully sustainable, and we may be buoyed back to the 225-250K range consistent with the jobs recovery going back several years. Continuing claims ticked up to 1.739 million last week from just under 1.71 million the previous week — still impressively robust from an historic perspective.

Mark Vickery
Senior Editor

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