While job growth was tepid in July, this was exactly what the markets needed to reverse Thursday's 317-point decline, as pressure on the Federal Reserve to raise rates subsides.
Yet what seemed like disappointing results turned out to be exactly what Wall Street needed.
On the one hand, the economy still managed to produce more than 200,000 jobs in July, which marked the sixth consecutive month in which job creation topped that level. That hasn’t been seen since the late 1990s. “July’s payrolls report helps to confirm the sustainability of the strongest labor market expansion since 1997,” said Guy LeBas, chief fixed income strategist for Janney Montgomery Scott.
On the other hand, the labor market was just tepid enough to cool at least some of the hot debate about how the Federal Reserve needs to stop coddling an economy that’s starting to sizzle and hike rates soon.
Immediately after the jobs report was released Friday morning, investors took a deep breath and calmed down following Thursday’s 317-point drop in the Dow Jones Industrial Average.
Though it seemed as if the markets were headed for another triple-digit down day based on sentiment before the opening bell, the Dow and S&P 500 were relatively flat in early morning trading. By around 11:30 am, the Dow had fallen by around 50 points, but that was pretty much all the bulls could hope for:
The real question is how long will the bears be kept at bay? A week from now, the government is set to release another batch of data detailing worker productivity and labor costs. And if there’s any whiff of inflation in those figures, the bears are likely to awake once more.
The U.S. added 209,000 jobs in July, but the unemployment rate remains steady
The U.S. economy added 209,000 new jobs in July, according to the latest employment report from the Bureau of Labor Statistics. The number is slightly lower than the 233,000 jobs some analysts expected. Despite the increase, unemployment ticked up slightly to 6.2%.
The report also showed that the labor force participation rate—the percentage of the working-age population either employed or looking for a job—moving up only slightly to 62.9%, virtually unchanged since April. The number of long-term unemployed, who make up 32.9% of the total unemployed population, also changed little, moving from 3.1 million to 3.2 million.
The BLS revised upwards its May and June employment growth figures, reporting 15,000 more jobs were added in those months than previously reported.
Job growth is always a closely-watched indicator of economic performance, but investors will be paying especially close attention to today’s numbers and what they might mean for interest rates. The Federal Reserve has shown increased confidence in the economy, and recently began phasing out its bond buying program known as quantitative easing.
While Federal Reserve Chair Janet Yellen announced on Thursday that the Fed still had no plans to increase interest rates, citing concerns with the housing market’s slow recovery, many economists believe that strong GDP growth in the last quarter combined with persistent job growth may soon force the central bank’s hand as it seeks to keep inflation from creeping over 2%. The beginnings of a return to pre-recession interest rates would be good sign for the economy as a whole, but some investors may stand to lose money if interests rates rise earlier than expected.
Great jobs numbers have stock investors cheering. But what about bonds?
We’re heading into the 4th of July weekend with reasons to be cheerful. The jobs report from the Bureau of Labor Statistics came in surprisingly strong. Unemployment is down to 6.1%, the lowest level since before the financial crisis. And employers reported adding 288,000 new jobs, considerably more than the roughly 212,000 economists had forecasted, according to a Reuters survey.
At the same time, the stock market continued it’s rally. After the report the Dow climbed past 17,000 for the first time. So the story here — more jobs, stronger economy, good news for investors — is clear, right?
Well, actually, that’s if you care only about the stock market. The bond market had a different reaction this morning: Yields on Treasuries ticked up, which means that their prices fell. And while most of us consider bonds the ho-hum, steady part of our portfolios, they stand to take a big hit if employment continues to come back more quickly than expected.
The reason? In the upside-down world on bond investing, a really strong and sustained recovery means the Fed is more likely to raise interest rates — and rising interest rates cause bonds to fall in value. In this case, the potential slide could be worse because bonds gained in value this year as investors bet that the status quo of low interest rates would hold.
Of course, the jobs report wasn’t perfect. There are still plenty of signs of economic slack. Wage growth is still slow. And then there’s this:
Remember, the unemployment rate only captures people who say they are still looking for work. The graph above shows that the number people either working or trying to work is historically low. That partly reflects demographic changes, but also a large number of people so discouraged in their job searches they’ve stopped looking. Numbers like these are one reason Janet Yellen and the Fed may continue to hold rates low despite the better numbers.
Still, after a long period of low rates and strong returns for bonds, people who run mutual funds are worried that many investors are unprepared for rising interest rates. Speaking yesterday, before the jobs numbers came out, T. Rowe Price chief economist Alan Levenson noted that the risk of losses on long-maturity bonds is unusually high. “I don’t know that retail investors are aware, as they’ve ridden this bond market down to lower yields, that the duration of their assets and vulnerability to capital losses is extraordinary by historical standards,” he said.
How big a loss are we talking about? An exchange-traded fund owning long-maturity bonds has a “duration” of about 14 years, which roughly translates to a 14% capital loss should rates rise a full percentage point. A more typical fund used as a core bond holding, the Vanguard Total Bond Market Fund, has a duration of 5.6, so would face roughly a 5.6% decline in a one-point rate spike.
This doesn’t mean investors should be running away from bonds. Rates could stay low for a long time. And compared to stocks, bonds are still likely to be less volatile, especially in the lower-duration bonds you might have in a short- or intermediate-term bond fund. But today’s happy job news is reminder that the era of strong bond returns is likely coming to a close.
June job growth beats expectations+ READ ARTICLE
The U.S. economy added almost 288,000 new jobs in June, according to new government data Thursday, handily beating analysts’ expectations and sending the unemployment rate to its lowest level since September of 2008.
The pace of job creation well outpaced projects that the economy would add 215,000 jobs. The unemployment rate dipped from 6.3% to 6.1%, its lowest level since the month Lehman Brothers collapsed and the U.S. economy went into a tailspin.
Stock markets jumped on the news, with the Dow Jones Industrial Average surpassing 17,000 points for the first time ever.
The data from the Bureau of Labor Statistics signaled that the economy was healthily bouncing back from a biting cold winter that hampered growth, and relieved economy watchers who had been alarmed by an economic contraction in the first quarter. The numbers will also sure come as a relief to Democrats who have been fearful that a still-sluggish economy will hurt them against Republicans in the midterm elections. June marked the fifth consecutive month of job gains exceeding 200,000, the best clip since the tech boom of the late 1990s, the Associated Press reports.
Job growth figures for May were also revised upward. BLS described the job gains as “widespread,” powered by growth in “business services, retail trade, food services and drinking places, and health care.”
Signs that the economic recovery remains tepid still persist. While the longterm unemployed, defined as those jobless for 27 weeks or more, dropped by 293,000, 3.1 million Americans remains in that category.
But with exports hitting a record high and imports falling, the trade deficit fell 5.6%, to $44.4 billion.
In the news: Clashes between Palestinian protesters and Israeli security forces; ISIS; Obama's Syria strategy; Obama's religion problem; U.S. jobs report; Hurricane Arthur
- “The abduction and suspected revenge killing of an Arab youth sparked intense clashes between Palestinian protesters and Israeli security forces in East Jerusalem on Wednesday, raising the specter of wider violence two days after three kidnapped Israeli teenagers were found dead in the occupied West Bank.” [WashPost]
- “…Prime Minister Benjamin Netanyahu and his allies on Israel’s political right appear to have extracted what they wanted from the crisis. And that has been disastrous for Palestinian civilians, who are suffering what, by every indication, appears to be collective punishment by the Israeli government for the actions of a few rogue militants.” [Vox]
- How ISIS Came to Control Large Portions of Syria and Iraq [NYT]
- “There’s a battle raging inside the Obama administration about whether the United States ought to push away from its goal of toppling Syrian dictator Bashar al-Assad and into a de facto alliance with the Damascus regime to fight ISIS and other Sunni extremists in the region.” [Daily Beast]
- Secretive agency leads most intense anti-corruption effort in modern Chinese history [WashPost]
- “Relations between the CIA and Congress are more fraught than at any point in the past decade. The source of the tension is the Senate intelligence committee’s classified report on the CIA’s controversial post-9/11 interrogation program—and the agency’s response to it. The bad blood could get worse in coming weeks, when portions of the report and CIA response are expected to be declassified.” [WSJ]
- With Change Proving Difficult, Barack Obama Returns to Hope [TIME]
- “That Obama has grown frustrated by Congress is nothing new, but the fact that he is wearing it on his sleeve is.”
- “The unemployment rate, at 6.1%, is at its lowest since September 2008, the month of the Lehman collapse. However, the labor force participation rate is still at 62.8%—also the lowest ever.” [Reuters]
- “This week, in the Hobby Lobby case, the Supreme Court ruled that a religious employer could not be required to provide employees with certain types of contraception. That decision is beginning to reverberate: A group of faith leaders is urging the Obama administration to include a religious exemption in a forthcoming LGBT anti-discrimination action.” [Atlantic]
- “Thousands of Facebook users received an unsettling message two years ago: They were being locked out of the social network because Facebook believed they were robots or using fake names. To get back in, the users had to prove they were real. In fact, Facebook knew most of the users were legitimate.” [WSJ]
- “Tropical Storm Arthur became a hurricane early Thursday morning and continues to accumulate strength as it approaches the North Carolina coast.” [TIME]
The Department of Labor's May jobs report shows continued employment growth. But millions more jobs are needed to get the workforce back to pre-recession levels.
May marks the fourth straight month of jobs growth in 2014+ READ ARTICLE
The U.S. added 217,000 jobs in May, according to the federal jobs report released Friday, but the unemployment rate held steady at 6.3%. That rate matches April’s figure, the lowest seen in five years.
May marks the fourth straight month of jobs growth in 2014, with the economy adding on average about 214,000 jobs per month this year. The Bureau of Labor statistics report aligns with analysts’ predictions that the May report would reflect moderate growth following April’s strong report.
Private-sector employment rose by 179,000 jobs in May, payroll service firm ADP reported Wednesday.
April’s jobs numbers were adjusted to show 282,000 jobs were added last month, down 6,000 from the 288,000 additional jobs previously reported.
New data show employers added 288,000 jobs in April, beating expectations by analysts and pushing down the unemployment rate to 6.3
Employers added 288,000 jobs in April, according to government data released Friday, beating expectations and pushing the unemployment rate down to 6.3%, the lowest level in more than five years.
The latest drop in the unemployment rate, which has steadily ticked down in recent months, marks a more significant drop from 6.7% last month.
Jason Furman, who chairs the White House Council of Economic Advisors, called the employment growth “solid,” but said President Barack Obama “continues to emphasize that more can and should be done to support the recovery, including acting on his own executive authority to expand economic opportunity, as well as pushing Congress for additional investments in infrastructure, education and research, an increase in the minimum wage, and a reinstatement of extended unemployment insurance benefits.”
Republicans said the numbers weren’t as good as they appeared and continued to hammer Obama’s economic policies.
“We’re happy that more Americans were able to find work last month, but more and more people are dropping out of our workforce—giving up on finding a job,” Republican National Committee chair Reince Priebus said in a statement. “These are men and women who desperately need work and want work, but with the same labor force lows from the Carter economy, there are simply no jobs for them.”
Analysts were hopeful Friday’s numbers would show strong growth after a long, cold winter kept the slow economic recovery sluggish in recent months. Analysts had predicted about 200,000 jobs added, reflecting positive private-sector growth. The payroll-processing firm ADP said Wednesday private employers added 220,000 jobs in April, up from 209,000 added in March.
The Bureau of Labor Statistics also revised the March jobs report to show that 203,000 jobs were created that month, up from the 192,000 originally reported.
The Bureau of Labor Statistics reports the unemployment rate remained steady at 6.7%, unchanged from February, and that more than 190,000 new jobs were added in March, just under economists' predictions of 200,000
The economy added 192,000 new jobs in March, according to the Bureau of Labor Statistics, showing signs of slight growth. The unemployment rate did not change from the 6.7% unemployment rate reported in February.
The 192,000 jobs added were slightly less than the 200,000 jobs economists estimated the economy would have in March, showing the impact of the weather as a severe winter crept into spring. Payroll processer ADP estimated on Wednesday that the private sector added 191,000 jobs in March, slightly above the 12-month national average. Other estimates had predicted as many as 275,000 jobs added last month.
The February jobs numbers were revised on Friday to show that 197,000 jobs were added in the month, up from the 175,000 originally reported. Employment gains in both February and January were about 37,000 more than previously reported.