June Factory Orders, July Layoffs and Weekly Jobless Claims
Economics in a nutshell: “The labor market data look good going into tomorrow’s employment report.”
INDICATOR: June Factory Orders, July Layoffs and Weekly Jobless Claims
KEY DATA: Orders: -1.5%; Excluding Aircraft: +0.7%/ Layoffs: 45,346/ Claims: +3,000
IN A NUTSHELL: "The labor market data look good going into tomorrow's employment report."
WHAT IT MEANS:
Today was the relative calm before tomorrow's employment storm. The data released were not biggies, but they do indicate the economy and the labor market are improving. On the industrial side, factory orders fell sharply in June, which we knew was the case because of the previously reported sharp drop in durable goods demand. But the fall off was due to a large drop in aircraft orders. The remaining industries posted increases, led by solid gains in vehicles, appliances and machinery. It appears that the collapse in the energy sector is ending. For two months now, new orders for mining and oil and gas field equipment were up. Of course, the level is now barely measureable, but up is still better than down.
The employment data continue to point to further tightening in the market. Challenger, Gray and Christmas reported that layoffs rose in July from June levels, but were down from the July 2015 numbers. Despite the firming in oil prices, energy companies continue to announce more cut backs in their workforces. Job announcement are down nearly 9% this year despite a huge increase in energy layoffs.
Weekly claims for unemployment insurance rose modestly but remain at near record low levels. This is a tight labor market and firms are just not cutting people.
MARKETS AND FED POLICY IMPLICATIONS:
The markets are likely in watch and wait mode, even given the Bank of England's decision to go all-in on monetary stimulus by cutting rates and buying bonds. Bond rates in the U.S. are down sharply again, which is good since I am waiting for my final reading on my remortgage rate. While even a huge jobs report would not likely cause the Fed to start talking up a September rate hike, it would change the thinking of the markets, which is still not convinced the monetary authorities will pull the trigger by the end of the year. But we don't need a number that is anywhere near what we got in June to indicate the labor market is really tight. Indeed, a moderate one would be good enough.
Interpreting Tomorrow's Jobs Report: Here are some things to think about when you try to understand the employment report. First, don't look at the total, as the details always matter. But if you are fixated on the top line number, as so many are, keep in mind that given demographics and labor force growth, it only takes about 100,000 jobs (+/- 25,000) to keep the unemployment rate stable. Anything over 150,000 is enough for it to decline. We have averaged 185,000 this year, which is why the unemployment rate is falling slowly. Don't expect job gains to match the previous few years increases because the low number of unemployed and the declining supply of those not in the market makes it hard to hire lots of people. The consensus is for about 180,000 new jobs and a 4.8% unemployment rate, which would indicate the labor market is solid. Also, don't worry about the participation rate: It goes up and down on a monthly basis. A continuation of the rise over the year would show workers feel the market is strong. As for the wage number, it is hard to interpret because the data are less than ten years old. But the year-over-year increase is accelerating and a continuation of that trend would be a warning the labor market is nearing full employment.
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