Friday, August 3, 2012

July NFP & ISM Beat Expectations ...

July state of employment and services ISM reports were better than expected and the market is certainly reacting positively.  In our opinion, a one month's report does not change the underlying slowing economic and job growth trend that we have been seeing.  In addition, the better numbers actually reduce probability of another QE3, which we believe the market is more than pricing in. 
  • Net change in total NFP was 163K, above our 100.5K estimate and the Street's 100K.  Government jobs dipped 9K, making the private NFP total change 172K.
  • Hourly earnings went up by only 2c, or 0.1%, less than the Street's 0.2% estimate.
  • Weekly hours worked remained unchanged at 34.5 hours.
  • The questionable headline unemployment rate was pretty much unchanged.  Although the BLS cites it at 8.3%, it went up by only 3.7bps to barely above 8.25%. 
  • However, the more important U-6 unemployment rate which pretty much takes every unemployment type into account, increased by 10bps to 15.0%.  The non-seasonally adjusted U-6 figure also went up by 10bps, ending at 15.2% in July.  U-6 has increased by 0.5% since March '12.
  • Labor force participation rate declined another 10bps from previous month to 63.7; that's down from last year's 64.0. 
  • Number of people employed declined 195K from June, but up 2.77MM from last year.  This household generated data certainly does not go hand in hand with the establishment data. 
  • We also note that an additional 348K people left the labor force compared to June; and 2.03MM compared to last year!
  • The long-term unemployed (27+ weeks) figure declined by 185K from June.
  • Interestingly, the manufacturing sector added 25K jobs.  It is interesting because three out of the five manufacturing business surveys conducted by Federal Reserve Banks showed declines in their employment sub-indexes in July.  The July manufacturing ISM employment sub-index also declined.  We wonder how much the seasonality adjustments applied by the BLS have impacted manufacturing and total NFP numbers. 
  • In the BLS selected industry list, only construction showed a monthly decline in jobs. 
  • Temporary help in professional and business services continued to grow with 14.1K jobs added.
  • The leisure and hospitality space also looked good with 27K positions added.

While the July NFP beat estimates, many of the details we provided above show that things are not improving as significantly as they should.  Although the market is applauding the report, we remain pessimistic.  S&P 500 is up 1.8%, closing in on the 1390 level!  CSTR is up more than 1%, while FB and NFLX are pretty much flat.  XHB is up 2.2%, but remains lower than where it closed at last week. 

The market is also being helped by the slightly better than expected ISM services report. 
  • ISM services for July came in at 52.6, up from June's 52.1 and higher than the 52.3 consensus. 
  • New orders, inventories, and export orders went up. 
  • However, employment, backlog of orders, imports and inventory sentiment were down. 
  • The employment sub-index dipped three points to 49.3; below 50.0 is not necessarily encouraging. 
  • Lastly, this better than expected ISM services number is barely above the LTM low of 52.1, and certainly below that period's 53.9 average.  Again, it is not necessarily encouraging. 

No comments:

Post a Comment