Mixed US Jobs Report Sends US Equities to New Highs

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on Jul 5, 2021
Updated: Dec 19, 2022
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The US Non-Farm Payrolls report showed ongoing recovery but a long way to go until full recovery. The unemployment rate unexpectedly increased. S&P500 reached a new all-time high. 

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The Non-Farm Payrolls (NFP) report in the United States revealed that the US economy added 850k new jobs in June. The market expected 725k jobs to be created, so the extra 125k confirm the strong momentum in the labour market’s recovery.

Moreover, revisions for April and May data netted another 15k new jobs – yet another sign of a labour market comeback. However, the unemployment rate unexpectedly climbed to 5.9% from 5.8% previously and 5.6% expected.

As always, the NFP report is complex, and the details of the report are often more important than the headlines. This was also the case last Friday.

Details of the July 2021 NFP Report

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The labour market report covers different aspects of the jobs market beyond the actual employment numbers. In June, an interesting fact is that although the actual hours worked declined by 0.3%, they were offset by a strong increase in Average Hourly Earnings (AHE) that led to an increase of 0.6% in aggregate weekly payrolls.

In other words, the labour shortage translates into higher wages, eventually impacting inflation. Traders should remember that the Federal Reserve has a dual mandate, targeting price stability and job creation.

Low-paying services in industries such as leisure & hospitality have seen the biggest increase in AHE. Because of a smaller pool of available workers, employers are forced to raise wages.

All in all, a mixed report showing ongoing recovery despite the unemployment rate diverging. Moving forward, the market participants’ attention shifts to the August Jackson Hole Symposium.

Expectations grow that the Fed will announce the tapering of its asset purchases at this occasion. Further progress toward the Fed’s dual mandate will further favour such an outcome. Hence, the US dollar should remain bid on every dip, just as it did in the weeks that followed the Fed’s June meeting.

This week’s FOMC minutes may offer further clues about the Fed’s next move. With the IMF raising its growth rate outlook for the US economy in 2020 to 7%, the Fed is pressured to remove the stimulus.

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