An Expanding Economy Generates Jobs - July 8, 2019

It’s Wall Street’s monthly ritual – another first Friday and another job’s report. So, let’s dig in and offer some perspective.

Nonfarm payrolls rose a strong 224,000 in June. The unemployment rate inched up from 3.6% in May to 3.7% in June because more people started looking for jobs than landed jobs (U.S. BLS).

The monthly numbers get plenty of attention, maybe too much attention. Asking whether the U.S. economy is generating new jobs is an important question. But, monthly data can be lumpy, which whipsaws sentiment.

What is important is the overall trend. If we review the data for the first six months of the year back to 2012, we smooth out the lumpiness and get a better read on what’s happening in the job market.

During the first six months of the year, the economy has generated an average of 172,000 new jobs each month. It’s respectable but down from 2018 because economic growth has slowed.

Knee-jerk stock market reaction to June’s numbers: The Dow, the S&P 500, and the NASDAQ, which closed at record highs on Wednesday, all posted minor losses on Friday.

Why? Sometimes, good economic news can temporarily be viewed negatively by short-term traders. In this case, it lessened the odds of an aggressive fed rate cut at the July 31 meeting.

Still, June’s report isn’t signaling a steep slowdown in growth, which is good news for Main Street. And, ultimately, a tailwind for investors, which rely on earnings growth.