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Friday, August 5, 2016
Markets soar after 255,000 jobs were added in July
Dow jumped up 147, advancers over decliners 5-2 & NAZ gained 53. The MLP index fell 5+ to the 311s & the REIT index was flattish in the 368s. Junk bond funds went higher & Treasuries were weak while stocks rallied. Oil dropped (see below) & gold declined 24.
Employment jumped in Jul for a 2nd month & wages climbed,
pointing to renewed vigor in the US labor market that will sustain
consumer spending into H2. Payrolls
climbed by 255K, exceeding all forecasts, following a 292K gain in Jun that was a bit
larger than previously estimated, according to the Labor Dept. The jobless rate held at 4.9% as many of the people
streaming into the labor force found jobs. The rate of hiring is
more than enough to whittle away at the jobless rate over time &
gradually eliminate labor-market slack, a goal of Fed
officials who’ve kept interest rates low to spur growth. The forecast called for a 180K advance. Revisions added 18K jobs to overall payrolls in the previous 2 months. The
unemployment rate was little changed as employment climbed by
420K, more than making up for the 407K increase in the labor
force. The labor force participation rate, which indicates the
share of working-age people who are employed or looking for work,
increased to 62.8% from 62.7%. Wage
growth offered more promising signs of acceleration, with average
hourly earnings rising a more-than-forecast 0.3% from a month
earlier, the most since Apr, to $25.69. The year-over-year increase
was 2.6% in Jul, the same as in Jun. The average work week for all workers also increased by 6 minutes to 34.5 hours, up from 34.4.
The
gain in payrolls was broad-based, including manufacturers, health-care,
retailers, temporary-help agencies & leisure & hospitality.
Gov agencies also took on 38K workers, the most since
Sep 2014, reflecting gains at local schools. The report did come with one caveat. The underemployment rate climbed to
9.7% from 9.6% as many of the people entering the
workforce had to settle for part-time jobs. The number working part-time for economic reasons rose to 5.94M from 5.84M. Also, the number of discouraged Americans, those who stopped
looking for work because of bleak prospects, rose to a 5-month high
of 591K.
The US. trade deficit rose to a 10-month high in Jun as rising
domestic demand & higher oil prices boosted the import bill while the
lagging effects of a strong $ continued to hamper export growth. The Commerce Dept said the trade gap increased
8.7% to $44.5B, the biggest deficit since Aug
2015. The May trade deficit was revised slightly down to $41.0B. Jun marked the 3rd straight month of increases in the deficit.
Economists had forecast the trade gap widening to
$43.1B after a previously reported $41.1B
shortfall. When adjusted for inflation, the deficit rose to $64.7B from $60.9B in May. The gov's snapshot of Q2 GDP published last week said trade had contributed two-tenths of a
percentage point to the 1.2% annualized growth pace during the
period. The $ sharp rally between Jun 2014 & Dec 2015 has
undercut export growth. Exports of goods & services edged up 0.3% in Jun. Exports to the EU jumped 7.8%, with goods
shipped to the UK soaring 18.2%. China bought more
US made goods in Jun, with exports to that country rising 3.6%. Imports of goods & services increased 1.9% to $227.7B, with oil prices accounting for part of the rise. The increase in imports also reflected a pickup in domestic
demand. Imports from China increased 2.8%. With imports outpacing
exports, the US-China trade deficit rose 2.5% to $29.8B, the biggest gap since last Nov.
Oil prices dipped, ending a 2-day rally, as a glut of
crude & refined products weighed on markets & investors eyed a
possible stutter in China's imports. Downward pressure returned as overproduction in crude & refined
products has left onshore storage tanks brimming & triggered the
chartering of tankers to store unsold fuel. Oil prices were still more than $2 per barrel above the week's lows,
which was attributed to short-covering. Investors added the
equivalent of 56N barrels of short positions in the 3 main
Brent & WTI futures, & options contracts in the week to Jul 26.
The bulls are happy after the jobs report. The data was generally favorable. However, it gives the Fed a little more ammunition for those who want to increase interest rates ( a negative for the stock market). Dow is within 100 of its recent record high.
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