Wow, what a beat.  The market expected +250k job adds in July (a month that is notorious for being weak) and we got +528k.  Not only did we not see a deterioration in payroll from the 300k+ we’ve seen for the last few months, but the strength in the labor market was across the board.  The participation rate remained high and the unemployment rate dropped to 3.5%.  On a non-seasonally adjusted basis, there now 159,067 persons employed which compares quite favorably to the 158,017 employed in February 2020.  As social equality is now part of the Fed’s mandate on full employment, the unemployment rate for Hispanics and Black or African American ethnic groups are now 3.9% and 6.0%, respectively.  Comparatively, in February 2020 the unemployment for Hispanics and Black or African American ethnic groups was 4.9% and 5.8%.  Further, the chart below shows that the U6 unemployment rate, which measures unemployment plus all persons marginally attached to the labor force and part-time workers, has remained at a record 6.7%. 

So what are this implication of this print.  First, clearly, the labor market is not falling off a cliff and so the “recessionistas” will have to wait another day.  Second, it means the Fed is probably going to raise rates more.  The Fed Funds market had already been moving up as a number of Fed officials had been warning about inflation in recent days.  So, the market now expect the Fed to raise to 3.63% up from just 3.3% 5 days ago.  Big moves in the rates market.  This will unsettle the equity and bond market at first as we recalibrate inflation expectations.  But the silver lining is that a strong labor market means a strong economy!  Today, we’ll see Tech and bonds pullback with cyclicals that like higher rates (ie, banks) move higher.  We’re also seeing Travel up as there have been some solid earnings reports there and the labor news bodes well for consumer spending.

For now the economy does not seem to be falling off a cliff…which I think has been my message all along.

Disclosures

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