The market breathed a sigh of relief on the strong June jobs report, but just as investors shouldn’t get too down when the numbers come in light, they shouldn’t get over-exuberant on the upside either.
Employers added 287,000 jobs last month, well ahead the 175,000 economists were forecasting.
That’s a huge rebound from a shockingly bad May report — which it turns out was even worse than first thought. Indeed, May’s non-farm payrolls were revised down to 11,000 from a previously anemic reading of 38,000.
To be sure, the strike by 35,000 employees of Verizon Communications Inc. (NYSE:VZ) skewed the numbers over the last couple of months. But averaging out the two months’ non-farm payrolls gains shows an economy that is hardly sputtering on the labor front.
The unemployment rate, which is derived from a separate survey, ticked up to 4.9% from 4.7% as more people came back into the workforce. That said, labor force participation remains near 40-year lows. Average hourly earnings improved 2.6% year-over-year, but missed the forecast for 2.7%.
True, that’s the fastest pace of wage growth since the recession, but it still pales in comparisons to the growth rates of more than 3.5% we saw a decade ago.
Jobs Report Tells the Same Old Story
Predictably, markets rallied on the better-than-expected jobs report — stocks are now back to their pre-Brexit levels — but nothing has really changed in the labor market.
It’s critical to remember that a single month of data — subject to repeated revisions — can’t tell us anything concrete about the health of, well, anything. Average the May and June payroll figures and you get job growth of about 150,000 a month. That doesn’t sound so hot, but then again, that’s what the economy was adding at the end of summer 2015 before jobs growth made a big leap in the fourth quarter.
The pattern is repeating this year too. As others have pointed out, we’ve seen this seasonal story play out for more than five years now. The economy slows down in the winter, the data soften in spring and the market begins summer trading full of anxiety. Then, in the second half of the year, the economy bounces back.
The bottom line is that the non-farm payrolls report is more noise than signal. The investment story hasn’t really changed — on balance, economic data is mixed, monetary policy remains bogged down by Brexit fears and the corporate earnings picture is still soft. The state of the economy shows no definitive trend.
In other words, the economy continues to muddle through, which has been the status quo throughout the bull market. Making investment decisions based on the June jobs report or any other single piece of data is foolish.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.