Payrolls Bounce Back

Nonfarm payrolls climbed a solid 224,000 in June, well above consensus expectations calling for 160,000 new jobs and a strong rebound from the weak May report that showed just 72,000 jobs created (revised down from 75,000).  Employers have added jobs for 105 straight months, by far the longest streak of job creation on record.

The unemployment rate, derived from a separate survey, inched higher to 3.7% (from 3.6%) as more workers were drawn into the labor market, but remains near 50-year lows.

As shown in the LPL Chart of the Day “RESILIENT JOB CREATION AGAINST TRADE HEADWINDS”, the 12-month average jobs gain of 192 thousand remains well within the recent range and a solid trend for this mid-to-late stage of the economic cycle.

“The June rebound in job growth highlights that one number doesn’t make a trend,” said LPL Research Chief Investment Strategist John Lynch. “In fact, it’s been seven years since job growth fell below 100,000 for two consecutive months. Now, the question for markets, with eyes on the Fed, is whether good news is good news or good news isn’t so good.”

Stocks and Treasuries immediately sold off on Friday’s report because of the possible Fed implications. The bond market is still overwhelmingly pricing in a rate cut in July, although the strong labor market does make the case for softer Fed policy a bit weaker and probably takes a 50 basis point (0.5%) rate cut at the July meeting off the table.

Wage growth, a key focus for the Fed, remained above inflation but well contained, as average hourly earnings rose a less-than-expected 3.1% year over year. That level can continue to bolster consumer confidence and support consumer spending while keeping the pressure off of the Fed to raise rates. The next two-day Fed meeting concludes on July 31. We would look for a (0.25%) basis point cut that leaves the door open for more, but the strong jobs report allows for some doubt to creep in

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