- June payrolls rose 4.8mn significantly beating consensus expectations for 3.2mn
- Unemployment rate fell to 11.1% from 13.3%, also falling to below consensus estimates of 12.5%
- Initial weekly jobless claims remain stubbornly high, rising to 1.42mn from 1.48mn and remaining above expectations
- Continuing claims rose to 19.3mn from 19.2mn
Larry Kudlow touts the report as “Spectacular!”, President Trump thinks this is evidence the economy is “roaring back”, the market likes it but behind the cheerleading what does the data tell?
Firstly, the nature of this crisis and the sudden stop to activity with the economic shock being so deep and widespread means that the initial snapback as the economy reopens, by default of the sheer depth, will seem forceful. But this is not a particularly good indicator of the future trajectory of the economy, post that initial economic boost. This is clearly visible in the payrolls report via the job gains being most concentrated in hospitality, leisure and retail as these areas of the economy have been boosted by an initial pent up demand as restrictions have eased, having reopened after a period of lockdown. The jobs recovered are not broad based across multiple industries and even in the sectors that have seen the biggest increases, employment is far from pre-crisis peaks. And with the virus resurgent gains in these sectors are unlikely to last.
The data beat relative expectations is good news, but we cannot lose sight of true perspective and underlying trends beyond the headline numbers. Employment is still 9.6% below its February level with 17.8mn remaining unemployed, making the jobs “recovered” relatively meagre in comparison to jobs that have been shed.
Furthermore, the data is truly looking in the rear-view mirror, only capturing the employment picture in the week ended June 13, and with the spread of the virus accelerating again, the same pace of continued improvement will be hard to come by. Job gains will slow with the virus resurgence and the July numbers will likely disappoint.
More broadly, this is not just true of the employment data. As the Citi US Economic Surprise Index chart below demonstrates, data has not been as bad as initially feared evidenced by the improvement in economic surprises. As expectations are raised and the surprise index sits at elevated levels market participants may be primed for disappointment.