July U.S. employment growth slows sharply

NEW YORK: U.S. employment growth slowed considerably in July amid a resurgence in new COVID-19 infections, offering the clearest evidence yet that the economy’s recovery from the recession caused by the pandemic was faltering.

Nonfarm payrolls increased by 1.763 million jobs last month after a record 4.791 million in June, the Labor Department said on Friday. Economists polled by Reuters had forecast 1.6 million jobs were added in July.

The unemployment rate fell to 10.2% from 11.1% in June, but it has been biased downward by people misclassifying themselves as being “employed but absent from work.” At least 31.3 million people were receiving unemployment checks in mid-July.

MARKET REACTION:

STOCKS: U.S. stock index futures initially pared some losses before reversing course and moved lower, with S&P 500 e-minis down 15 points, or 0.45%, with 290,267 contracts changing hands.BONDS: Benchmark 10-year notes were last unchanged in price to yield 0.5362%.FOREX: The dollar index rose 0.486%.

COMMENTS:

GUY LEBAS, CHIEF FIXED INCOME STRATEGIST, JANNEY MONTGOMERY SCOTT

“This morning’s payrolls report was a bit better than expected. There is a high degree of uncertainty in both data collection, seasonal adjustments and it’s a feature of the uncertainty in the economic situation right now. But still better than expected. A little bit of a selloff in the long end of the U.S. yield curve, though that is moderating now.”

“On the tick down in labor force participation, some portion of that is likely the result of the need for working parents to stay home or partially stay home… You can see that a little bit in the gender breakdown of the unemployment rate specifically in which it appears that more women than men are dropping out of the seeking employment category. So that may, because of traditional mores and roles, suggest that more women are considering staying home with kids this fall.”

JOE MANIMBO, SENIOR MARKET ANALYST, WESTERN UNION BUSINESS SOLUTIONS, WASHINGTON:

“For now... it’s tempering concerns about U.S. economic weakness.”

“If anything, it can allow for a momentary floor for the greenback, but I don’t think this changes the game for the U.S. dollar in any way. The trend is still lower. The virus continues to hold a tight grip on the U.S. economy, and sinking U.S. yields, that points to the Fed having to provide even more support if lawmakers don’t deliver more stimulus. One month’s survey isn’t going to be enough to meaningfully arrest the fall in the dollar.”

MICHAEL ARONE, CHIEF INVESTMENT STRATEGIST, STATE STREET GLOBAL ADVISORS, BOSTON

“The jobs report did come in better than expected. Stocks are breathing a sigh of relief this morning, they’re responding positively to the number.”

“From my perspective, a big miss, a big disappointment, or a very large exceeding expectations would have hardened positions (in Congress) and would have increased the divide.”

“That’s one of the challenges, in terms of fiscal policy, the fact the number came in a little better than expected, fairly close to consensus, it puts fiscal policy on a similar path so that neither side is going to be able to dig in here and say ‘the bill is too big,’ or ‘we need to do that much more.’”

“Hopefully, it focuses Democrats and Republicans to get something done immediately, rather than divide them even further.”

SEEMA SHAH, CHIEF STRATEGIST AT PRINCIPAL GLOBAL INVESTORS IN LONDON

“Expectations of a negative jobs print had been hanging over investors for the past month, preventing them from fully enjoying the run of strong economic data. In fact, the 1.76 million increase in non-farm payrolls was better than expected and means a record high level for the S&P 500 index is potentially in grasp. Perhaps it could even arrest the slide in Treasury yields.”

“Does today’s number imply economic conditions are significantly improved? No - it simply suggests the labor market was static in July, showing no signs of renewed weakness that the increase in COVID-19 cases had threatened. Nonetheless, with Congress failing to agree on a new fiscal stimulus package yet, the risk is that a policy failure drains the tentative strength that had been creeping back into the economy in recent months. With the unemployment rate still sitting above 10%, the pressure in Congress is still on.”

JUSTIN LEDERER, INTEREST RATE STRATEGIST, CANTOR FITZGERALD, NEW YORK

“It’s not a major reaction in the (Treasury) market. There’s a lot of unknowns going forward. The knee-jerk reaction in Treasuries was lower, but you’re kind of stabilizing and it seems to be dip buying.”

“All of the data has been very volatile as would be expected with everything going on right now.”

MAZEN ISSA, SENIOR CURRENCY STRATEGIST, TD SECURITIES, NEW YORK

“There’s a lot of high-frequency data that suggested that we would see a moderation in U.S. jobs growth. Obviously in the COVID-era, the margin of error is much larger. But this is a better than expected number in jobs and in the unemployment rate.”

“The story here is that you’re starting to see people back on the payroll. But it is moderating. It’s not as bad as feared. But given the still high unemployment rate, I would still characterize this as a job market that is stalling rather than making a significant comeback.”

IAN LYNGEN, HEAD OF U.S. RATES STRATEGY, BMO CAPITAL MARKETS, NEW YORK

“The Treasury market seems to have largely ignored the nonfarm payrolls report. The slightly better than expected headline print of 1.763 million has been met by broad indifference on the part of Treasury traders, with the 10-year yield effectively unchanged since the release.”

“The reason that the market doesn’t care right now is because we knew in the setup that if the number came in better than expected it would be dismissed, because its old data and the hit from the recent increase in COVID-19 cases isn’t expected to flow through to the labor market until the August and/or September series.”

YUNG-YU MA, CHIEF INVESTMENT STRATEGIST, BMO WEALTH MANAGEMENT, PORTLAND, OREGON

“There’s a lot of anxiety coming into this jobs report so the prospect that the recovery hasn’t stalled out is certainly very welcome news. (But) the data is still backwards looking, so it’s not something we can necessarily believe is the all-clear sign. There’s definitely still challenges ahead.”

SAMEER SAMANA, SENIOR GLOBAL MARKET STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE IN NEW YORK

“Payrolls growth came in ahead of expectations and showed that the labor market continues to heal, with the unemployment rate dropping faster than expected, following the sharp job losses earlier in the year.”

“This rebound, if it’s undeterred by the recent uptick in COVID-19 cases, should help underpin consumer confidence and consumption.”

“We continue to recommend that investors remain fully invested and favor large- and mid-cap equities, and the information technology, consumer discretionary, communication services, and healthcare sectors.”

OLIVER PURSCHE, PRESIDENT OF BRONSON MEADOWS CAPITAL MANAGEMENT IN FAIRFIELD, CT

“It’s a false positive and misleading. The underlying conditions are much worse than these numbers showing. It’s about instant real time data more than backward looking data. Small business optimism is coming out next week and that’s going to be interesting to see.”

“If you look at the headline number only it could further delay the stimulus, with Republicans saying ‘see things are improving, people don’t need that much money.’”