Another Jobs Day Surprise

By Matthew Klein |  Thursday, July 2

You’re hired! For the second month in a row, the jobs report was a welcome surprise. Since the economy hit bottom in April, roughly 8 million jobs have been added. Employment is still about 10% below the level in February, which is an unprecedented disaster, but if the growth of the past two months continues unabated, America will be back to normal by October.

But that optimistic perspective wasn’t reflected in market prices today. Despite the big surprise—forecasters had been expecting 1.7 million fewer new jobs—stocks only rose slightly. Moreover, the biggest winners were in oil and cloud tech, led by Noble Energy, Akamai Technologies, TechnipFMC, and DiamondBack Energy, while the biggest losers included the major cruise operators of Carnival, Norwegian, and Royal Caribbean. Interest rates dropped slightly, real yields on Treasury inflation-protected securities hit new all-time lows, and gold continued its relentless ascent.

The likeliest explanation is that investors believe the good news for June marks the end of a trend rather than the beginning of one. Plenty of data suggest the economy has already slowed since the week when the Bureau of Labor Statistics conducted its surveys. Restaurant attendance had been rising, for example, but it's now flat and outright falling in many parts of the country.

Part of the problem is that the virus is spreading faster than ever. The number of new confirmed cases reported in the past seven days is more than double what it was when the BLS was actually asking people about their employment status. (The survey week ran from June 7 through June 13.) Testing is also up, but not by nearly as much, which is why the positivity rate has jumped from 4.4% during the BLS survey week to 7.4% this week. Most of the job gains since April have been in high-risk sectors—leisure and hospitality, retail, personal services, and dentistry—so the spread of the virus means many of those gains could be short-lived.

The other problem is that the virus is increasingly damaging the rest of the economy. Even if everyone on temporary layoff was rehired tomorrow, there would still be almost 7 million fewer Americans with jobs than there were in February. That includes everyone from public school teachers to software engineers. Moreover, the number of jobless Americans who don’t expect to be rehired is rising rapidly.

Stock markets are closed tomorrow for Independence Day. Review & Preview will be taking the day off, as well. Have a good long weekend. We’ll see you Monday.

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