Non-Farm Payrolls Soar: A record 4.8 million jobs added in June, unemployment drops to 11.1%

• National payrolls rise 4.8 million in June, far more than the 3 million forecast.
• Unemployment rate improves to 11.1%, better than the 12.3% prediction.
• Equites rise modestly, dollar is flat in the major pairs, and Treasury yields stationary.

American employers hired back 4.8 million workers in June and the unemployment rate dropped to a pandemic low of 11.1% as the US economy continued to reopen despite setbacks in some states.

Non-farm payrolls

FXStreet

The gains reported by the Labor Department on Thursday because of the July 4 holiday were much stronger than the 3 million jobs and 12.3% unemployment rate predicted by economists.  The jobless rate was 3.5% in February.

The May and June total amounts to 34.7% of the 21.6 million people who lost their positions in March and April.  At this rate of hiring it would take until the end of October for non-farm payrolls to return its February level.  The May payroll was revised 190,000 higher to 2.699 million.  

All 50 states have restarted their economies but because the survey period for payrolls is in the middle of the month, it may not have picked up layoffs in regions where a surge of the virus has brought on rollbacks or pauses in reopening plans.

Market response

Stocks responded with a strong move higher with the Dow at one point ahead by 470 points. Yet by the end of the day concerns over the increasingly restrictive efforts to stem the virus spread in Texas, Florida and California had erased most of the gains and the average finished up 92.39 points at 25,827.36.  The S&P 500 closed up 0.45% at 3130.01.

The currency market was also torn between the positive economic news that would tend to diminish the safety trade to the dollar and its opposite effect from the rising pandemic worries in the US.

The euro opened at 1.1251 and ended just 12 points away at 1.1239. The USD/JPY treaded water gaining three points to 107.50. Sterling moved seven points lower to 1.2473, aussie ten points higher to 0.6926.  The USD/CAD was the most active among the majors shedding all of 24 points to 1.3564.

Treasury yields slipped with the 10-year losing one point to 0.669% and the 2-year losing under a point to 0.155%.

Initial jobless claims

Despite the renewed hiring new claims for unemployment benefits remain at very high levels with 1.427 million filing in the June 26 week, according to the Labor Department in a separate report.  It was the third week in a row that claims have topped their estimates.  

Initial jobless claims

FXStreet

The four-week moving average for claims dropped to 1.504 million in the latest week, and though that is just over one-quarter of its April peak it is more than double its 659,250 score at the height of the financial crisis a decade ago.  

Continuing claims rose 59,000 to 19.29 million though the base from last week was revised lower by 291,000.

Labor force participation rose sharply to 61.5% from 60.8% which is 1.3% above the April low but 1.9% from its February pre-pandemic high.

Leisure and hospitality work led rehires adding 2.1 million jobs, accounting for about 40% of the June increase.  Retail stores employed 740,000, education and health services 568,000 and the bellwether for an expanding economy, manufacturing added 356,000.

Other gains were in professional and business services up 306,000, warehousing 99,000 and construction 158,000.

Jobs were balanced between full and part time employees at 2.4 million each.

Average hourly earnings slipped 1.2% from May as many of the returning workers were on the lower side of the pay scale but for the year were higher by 5%.

A second unemployment gauge, the so called under-employment or U-6 rate which includes all who have looked for work in the prior year, rather than the one month limit of the standard U-3 rate, dropped to 18% in June form 21.2%.  

Conclusion

Market were generally pleased with the progress of the US economy in the NFP report but the fire on the horizon is the rapidly rising incidence of the virus cases in a number of states and the concomitant tightening of the restrictions on economic activity.  Past experience shows that the spread of the virus is extraordinarily difficult to prevent once it reaches a critical mass in the population.   

If the pandemic again threatens to overwhelm hospital systems in cities then the positive news of the past month could become a case of economic nostalgia.