EmailJune nonfarm payrolls rose just 80,000. A gain of about 100,000 was expected. Payroll growth is extremely sluggish. S&P futures sold off on the report and now suggest a down open of about eight points.
The 80,000 June increase in payrolls represents annualized growth of about 0.7%. It follows similarly modest gains of 68,000 in April and 77,000 in May. This is far from the type of payroll growth that typically occurs three years after a recession ends.
The meager payroll growth is consistent with our second quarter real GDP forecast of about a 0.6% annual rate of increase. The trend in payrolls suggests that the second half of the year will see real GDP growth running near (or below) the recent tepid 2% trend.
There are some silver linings in the report. The June average workweek rose to 34.5 hours from 34.4 hours in May. Hours worked typically rise before a increase in the rate of hiring. Hourly earnings rose a solid 0.3% in June, after a decent 0.2% gain in May. Higher wages can help support consumer spending. The small traces of good news, however, pale in significance to the continued intransigence of the payroll trend.
There might be some talk that the weak payroll number is, perversely, good for stocks because it increases the likelihood that the Fed will initiate another round of quantitative easing. That is not our view. It is far better to have the economy and earnings improve than to rely on the Fed to prop up financial assets by increased liquidity.
The payroll change is a bad number that continues the recent trend. It suggests continued weak economic and earnings growth. It isn't a horrible number that portends recession, but it certainly isn't the good type of data that the markets need to generate upside momentum through the summer months.
The grind continues.
Founder and Chairman, Briefing.com
