July’s unemployment data was weaker than expected. Moreover, there were considerable downward revisions from prior months. With the revisions, employment growth over the last three months has averaged 35,000—the worst since the pandemic. Approximately 40% of the revision was in state and local government education payrolls.
The unemployment rate rose 4.2% vs 4.1% the month before as the labor participation rate (LPR) declined to the lowest level in almost three years.
The LPR for those aged 25-54—the most important cohort of workers—also declined. Why the decline especially as there are ample jobs available?
The federal government shed jobs for a sixth month in July however the number of federal workers who have lost their jobs is statistically insignificant…about 27,000 net of a 2.3-million-person workforce according to government statistics. There appears to be some spillover into layoffs at universities and non-profits reliant on federal spending, a number that is also statistically insignificant.
Most believe the data does not suggest an imploding labor force but rather a hesitancy of companies to hire because of the current environment.
The Treasury market however rallied dramatically as one pundit stated, “the bots are fully in control of an illiquid market.”
Yields on the two-year note—or the instrument most sensitive to monetary policy—tumbled 22 bps to 3.74%, marking the biggest decline in the day of a job report release since July 2024.
Accordingly, the markets quickly boosted bets on Fed rate cuts. Futures are now fully pricing in two quarter point reductions this year with an 86% chance of the first one coming in September. That is up from about 26% before the payroll report.
The yield dramatically steepened.
Equites declined moderately on the data, posting their worst session since May according to Bloomberg. Goldman writes the level of complacency is at the highest level in 18 years.
The decline accelerated following an increase in rhetoric between the US and Russia.
The economic calendar is comprised of various manufacturing indices, the ISM Service Index, trade gap and an inflation sentiment survey. Also this week is a $45 billion and $25 billion 10-year and 30-year Treasury auction, respectively.
Last night the foreign markets were up. London was up 0.22%, Paris up 0.71% and Frankfurt up 1.17%. China was up 0.66%, Japan down 1.25% and Hang Seng up 0.92%.
Futures are up about 0.5% on monetary policy optimism. The 10-year is off 5/32 to yield 4.32%.
