The U.S. economy added 528,000 new jobs in July - The Department of Labor and Statistics reported that 528,000 new jobs were added in July. This massive number of new jobs created was over double the 250,000 new jobs that analysts had expected! The unemployment rate dropped to 3.5%, a 52-year low. The labor-force participation rate (the share of workers with a job or actively looking for a job) was 62.1% in July, its third consecutive monthly decline. It is well below the 63.6% level before the pandemic. Average hourly wages increased 5.2% from one year ago. While such a strong jobs report is good news, it puts more pressure on inflation. Due to strong job growth and such low unemployment, the country is experiencing a labor shortage that is forcing wages higher. More people working and higher wages increase consumer spending, which drives prices up. This report was not in line with what the Federal Reserve had hoped. The goal of the Fed is to slow the economy to lower spending and reduce inflation. When the Fed increases interest rates borrowing costs for businesses increase. Increased borrowing costs lower profits and historically cause companies to scale back on hiring. This has not been the case over the past several months. This report will probably cause the Fed to be even more aggressive with interest rate increases in order to cool the jobs market.
Stock markets ended the week slightly higher – Stocks ended the week mixed with the S&P and Dow almost unchanged and the NASDAQ up over 2%. The Dow Jones Industrial Average closed the week at 32,803.47, down 0.1% from 32,845.I4 last week. It is down 9.7% year-to-date. The S&P 500 closed the week at 4,145.19, up 0.4% from 4,130.29 last week. The S&P is down 13% year-to-date. The NASDAQ closed the week at 12,657.56, up 2.1% from 12,390.69 last week. It is down 19.1% year-to-date.
U.S. Treasury bond yields higher this week - The 10-year treasury bond closed the week yielding 2.83%, up from 2.67% last week. The 30-year treasury bond yield ended the week at 3.06%, up from 3.0% last week. We watch bond yields because mortgage rates often follow treasury bond yields. Unfortunately, on Friday after the release of the July job report yields jumped higher.
Mortgage rates – The Freddie Mac Primary Mortgage Survey reported that mortgage rates as of August 4, 2022, for the most popular loan products were as follows: The 30-year fixed mortgage rate was 4.99%, down from 5.30% last week. The 15-year fixed was 4.26%, down from 4.58% last week. The 5-year ARM was 4.25%, down from 4.29% last week. While everyone was encouraged that the 30-year dropped under 5% for the first time in three months, rates rose back up about 1/4% after the jobs report was announced.
Initial Jobless Claims
Initial Jobless Claims rose +6k to 260k for the week ending July 30th vs. the prior week's downwardly revised print of 254k (orig. 259k). The 4-week moving average of claims also rose +6k to just below 255k. Continuing claims, which lag by a week, rose +48k to 1.416mln from an upwardly revised 1.368mln in the prior week. This is the highest count for continuing claims since the week of April 1st.
The JOLTS report this morning showed June's job openings fell to 10.698mln, below market expectations of 11mln. Hire and separations modestly changes at 6.4mln and 5.9mln, respectively. Within the separations, quits were at 4.2mln, while layoffs were at 1.3mln. The annual job openings rate has now dropped significantly to +8.6% from a prior +17.3% back in May. In June, the number and rate of job openings dropped to 6.6% from 6.9% in May. Within that, the main declines came from retail trade (-343k), wholesale trade (-82k), and in state and local government education (-62k). The number and rate of total separation did not change much at 5.9mln and 3.9% for the month.
ISM Manufacturing PMI
The ISM Manufacturing PMI declined to its lowest print since July 2020, posting 52.8 in July vs. a prior 53.0. Overall demand was the main reason for the decline, as the new orders index dropped by -1.2% to 48.0. The production index also significantly declined, posting 53.5 on the month. While we see contraction in new orders and overall demand, supplier delivery times have shortened, improving manufactures' overall prospects. Prices have also shown a bit of softening as well, which helps overall sentiment remain more optimistic. Survey respondents reported strong hiring with few indicators of layoffs, however, quits have risen a bit, which leaves concern on the minds of employers.
Construction Spending declined by -1.1% in June, well below market expectations of a +.1% recovery from the prior month. Looking YoY, the June figure is still +8.3% over June 2021. Private construction fell -1.3% below May's level. Residential construction in that sector fell -1.6%, while nonresidential construction declined a more modest -.5% vs. the prior month. Public construction decreased by -.5% on the month, a slower decline vs. the past two months when we saw a -.7% drop for both April and May.