Hot June Jobs

by: Max Fraad Wolff

We saw 195,000 net new jobs created in June 2013; this is 20,000 above consensus and a strong report. We also saw large upward revisions to recent months, May was revised up by 50,000 jobs to 199,000 and April was revised up by 20,000 to 195,000. The broad unemployment rate held at 7.6%. Today's BLS Non-Farm Payrolls report suggests we are tracking to create nearly 200,000 jobs a month between April and June. We continue to see a limited average workweek. This speaks to our persistent difficulty creating full time and well compensated jobs. Involuntary part-time employment, people who need, want, seek full time work but can only secure part-time work, continues to increase.

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The last few months have been strong on a pay-rolls basis. The June Jobs report clearly supports the notion that the U.S. private sector is seeing improvement. The public sector remains weak and we do not expect to see this change. In June the public sector lost another 7,000 jobs. Federal payrolls contracted by 5,000 jobs, state employment declined by 15,000 and local governments added 13,000 jobs. Manufacturing was also weak, declining by 6,000 jobs in June. The June strength was a service sector story with 194,000 of the 195,000 net new jobs created contributed by the service sector.

On the better news front, we have started to see a very limited and long overdue increase in hourly earnings. The numbers remain subdued and non-supervisory employees in the U.S. have been waiting half a decade to see increases in real wages. The Consumer Price Index, CPI, increased about 1.4% over the last year. Wages increased, on average by 2.2%. Increases in earnings have been heavily skewed toward higher earners. We are seeing some very modest earnings increases ahead of the inflation rate. We need to see sustained increases in earnings ahead of inflation to rebase our recovery on tangible mass economic improvement.

June's strong report highlights several persistently weak areas worthy of pause and consideration. Our long-term unemployed continue to be unable to re-enter the labor force. The growing role of part-time work, even for those who need and want full time work is a concern. Lastly, we need to see a pronounced increase in hourly earnings and full-time job creation. Long term unemployment continues to be a major macro issue.

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Today's Jobs Report will immediately be seen in the light of the great Fed and monetary policy debates roiling global markets. Recent jobs market trends are consistent with a gentile tapering in the last quarter of 2013 by the Fed. In addition, the US continues to be a relative bright spot among leading economies with large assets markets. I would expect investors, domestic and international, to stay on the present course through the balance of the summer. Thus, we will see weakness in fixed income products, yield driven investments and interest will likely remain high in US equities. The rapid sell-offs in fixed income products could create a disorderly rotation back into these products if selling is overdone. Global political turmoil is rising and markets have largely ignored this. For how long will this continue?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.