NFP Report Exceeds Expectations
The Labor Department’s most recent jobs report was described as “near perfect” by Thomas Simons, economist at Jefferies & Company. Investors certainly took notice, as the dollar rose and the Dow reached new record highs.
Employers added 209,000 workers to payrolls last month, far exceeding the median estimate of 180,000, government data showed Friday. That followed an upwardly revised gain of 231,000 in June that was originally reported as 222,000.
The unemployment rate declined 0.1 percentage point to 4.3%, which ties a 16-year low. Joblessness ticked down even as workforce participation edged slightly higher to 62.9% from 62.8% in June.
Wages also accelerated in June, with hourly earnings rising 0.3% month-on-month. That translated into a year-over-year increase of 2.5%, which was slightly ahead of forecasts.
The nonfarm payrolls data outshined an earlier ADP report, which showed that 178,000 private sector jobs were created last month. The bulk of the gains were concentrated in the service-producing industries.
Markets Respond to NFP Report
The U.S. dollar index (DXY), which was recently seen trading at 14-month lows, shot up 0.8% to 93.54 on Friday. That was its highest settlement of the week. The DXY basket is down 8.5% for the year, putting it among the world’s worst-performing currencies.
Solid jobs data lifted stocks to higher ground, with the Dow Jones Industrial Average posting its eighth straight record rally and ninth consecutive gain overall. All of Wall Street’s major indexes rose on Friday, with the large-cap S&P 500 Index climbing 0.2% to 2,476.73. The Nasdaq Composite Index added 0.3% to finish at 6,351.56.
The jobs report also aided European stocks in posting their biggest single-day advance in three weeks. The pan-European Stoxx 600 Index finished 1% higher on Friday.
Uncertainty Remains Despite a Good NFP Report
Strong jobs data are nothing new. Nonfarm payrolls have consistently outshined expectations for the better part of the three years. While signaling a rebounding economy, the recent jobs reports have been unable to extinguish fears about a slowdown in inflation and consumer spending.
This backdrop could make the Federal Reserve reluctant to continue normalizing monetary policy, according to recent testimony from Chairwoman Janet Yellen. The U.S. economy got off to a woeful start this year and posted only modest gains in the second quarter. In response, the International Monetary Fund (IMF) has downgraded its outlook on U.S. GDP growth while simultaneously raising its forecast for China, Japan and the Eurozone.
Very few U.S. data releases are scheduled this week. The most prominent release comes Friday when the Labor Department reports on consumer inflation. Investors can expect a steady stream of Fed speakers throughout the week, including FOMC members Charles Evans and Neel Kashkari.