Thoughts on Jobs Data

The US created a net of 80k jobs in June, slightly below expectations, especially after the ADP data rose  hopes in some quarters for a stronger number.  Some of the underlying details were better though and this appears sufficient to keep the talk of QE3 in check.  

The bright spots in the report are two-fold.  First, hourly earnings rose 0.3% for a 2.0% year-over-year pace up from 1.7%.  This, at least in theory, could help support consumption.  That said, the early indications suggest retail sales remained soft in June, even though auto sales were a bit firmer.  Second, hours worked increased by a tenth of an hour.  This is important because output (GDP) is ultimately a function of hours worked and productivity.  The index of aggregate hours worked rose for the first time since February.  

The dollar strengthened in response to the report.  There are a couple elements to the market logic.  In the current environment, global growth concerns are dollar supportive.  In addition, the data taken en toto was not far from expectations and this meant it posed no obstacle to what the market wanted to do in the first place, which was to sell the European and emerging market currencies (risk off).  

The government sector shed another 4k jobs.   This stands in contrast to previous US recoveries that saw the government sector add workers.  It also stands in contrast to Canada, which reported its jobs data at the same time.   On the face of it, Canada reported more jobs growth than expected (7.3k vs 5.0k) and there were 29.3 k full time jobs created.  Yet, digging a little deeper reveals that all the job growth came from the government sector--teachers and health care workers.  The private sector in Canada shed 26k workers in June after shedding 22.5k jobs in May.    The Canadian dollar has weakened, though it is holding up better than the other dollar bloc currencies.   The CAD1.02 area marks initial resistance. 

The important take away from today's data for medium term investors is 1) it is too early to take calls for QE3 seriously for the July 31 FOMC meeting, especially given that Operation Twist was just extended and 2) ideas that Canada could hike rates any time soon seems misplaced. 

The important question for short-term participants is whether today will be a trend day or will consolidation emerge ahead of the weekend.  We lean toward the latter after yesterday's large moves, ahead of the weekend and the European finance ministers' meeting on Monday.