The Market Today

Stimulus Talks at Impasse; Economy Adds More Jobs Than Expected in July

by Craig Dismuke, Dudley Carter


VS Coronavirus Chartbook (PDF) (Link)

Monitoring the Virus Headlines: Several European countries, including Italy and Germany, posted concerning case increases, the positivity rate in Texas rose for a fifth day to its second-highest of the pandemic, and Illinois’s new case count was the highest since May 24. However, Arizona’s 7-day average for new infections fell to the lowest level since its pandemic accelerated and California’s reported new cases were well below average; there were some reports of potential understatement in California due to reporting issues. Cross-party stimulus negotiation again began later in the day, but earlier commentary continue to show a distance between the two sides remained wide. Speaker Pelosi said Congress needed to move quickly and Senator Schumer said Republicans were pinching pennies during a pandemic and noted that while some progress had been made, it wasn’t enough. The President’s Chief of Staff Meadows stressed that evening talks between the two sides would last for as long as necessary.


Economy Adds More Jobs Than Expected in July: The U.S. economy added 1.76mm nonfarm payrolls in July, above expectations for a gain of 1.48mm.  There were only minor revisions to previous months’ reports.  The private sector added a closer-to-expectations 1.46mm payrolls while government added 301k.  The government figures appear to have been exaggerated by the seasonal distortions from teachers leaving earlier in the year than normal and now returning.  Local government accounted for 241k of the added government jobs. Almost every sector added jobs, with the exception of IT, although the pace of improvement has surely slowed. The economy lost 22.2mm nonfarm payrolls in March and April, has now regained 9.28mm of those and remains 12.88mm short of  pre-virus employment.

Unemployment Rate Falls to 10.2%: In the household report, 1.35mm more people reported as employed while 1.41mm fewer reported as unemployed, driving the unemployment rate down from 11.1% to 10.2%.  The BLS continues to struggle with classifying workers properly.  They noted in their release that if workers who were not working due to the virus were classified correctly, the unemployment rate would have been approximately 1% higher – the same level of misclassification as in June.  In more evidence that people are returning to work as business re-opens, the number of people reporting as temporarily unemployed fell 1.3mm.  However, there remain 9.2mm in this classification, up from 802k in February.  Permanent job losers, which have increased with each month of the pandemic, actually declined 6k in another positive development. In the more traditional measures of slack, those unemployed part-time for economic reasons fell 619k to 8.44mm.  If there is an area of weakness in the report, apart from the amount of slack that remains, it was that 231k more people reported as not in the labor force. The labor force participation rate inched down from 61.5% to 61.4% while the prime participation rate dropped from 81.5% to 81.3%.

Bottom line: The July jobs data are better than expected; but, four months into the U.S. outbreak, there remains a large amount of slack and the pace of improvement is slowing.   

Fedspeak, Inventories, Consumer Credit: Boston Fed Bank President Rosengren is scheduled to speak at 9:00 a.m. CT, testifying on the Main Street Lending Program.  The July Wholesale Inventories report will be finalized at 9:00 a.m. CT, still expected to show a 2.0% decline.  June’s Consumer Credit report is scheduled for 2:00 p.m.

Stocks Rose Before the July Jobs Report:
Stocks climbed gradually throughout the afternoon and closed near their highs of the day, helping to pull Treasury yields up from near-record low levels but not able to keep gold from setting another record high. Stocks had struggled for direction during the morning session, despite better-than-expected jobless claims data providing some consolation after two weekly increases. While there were no breakthroughs during the trading day on a new plan for more stimulus, investors seem to be certain the leveling off of the recovery will force Washington’s hand to do more. Even the looming jobs report couldn’t keep the S&P 500 from its 0.6% gain or the Nasdaq from jumping 1.0% its fourth consecutive record close. As stocks climbed, Treasury yields moved higher before flattening out late in the day with the 2-year yield ending down 0.2 bps while the 10-year yield fell 1.1 bps to 0.54%. Gold jumped more than 1.2% to close at its latest record above $2,060 per ounce.


President Trump Issues Executive Orders Cutting of Popular Chinese Apps: The market tone was generally softer overnight ahead of this morning’s key report on the U.S. labor market as investors read through President Trump’s executive orders on a couple of popular Chinese apps and worried about prospects for a stimulus deal following another contentious meeting between negotiators. Thursday evening, President Trump signed separate executive orders that will ban new transactions with China’s TikTok and WeChat in 45 days. The action was added to a growing list of developments that have raised tensions between the U.S. and China in recent months.

Contentious Negotiations Show No Signs of Cooler Heads Prevailing: Of more immediate concern, a length Thursday evening meeting between White House officials and top Democrats ended with no signs of breaking the stimulus stalemate. White House Chief of Staff Meadows said, “The differences are still significant.” Speaker Pelosi remarked that “We’re very far apart,” and Senator Schumer said, “They were unwilling to meet in the middle, they said it mostly has to be their way.” Key differences on state aid and the size of an extended unemployment bonus could cause no deal to be reached by the soft Friday deadline the White House had laid out. President Trump has indicated he will look for ways to use executive actions to provide aid for the economy in the event Congress can’t reach an agreement. Before this morning’s jobs report, U.S. futures were roughly 0.5% lower and Treasury yields were close to unchanged on the day. After the better-than-expected payroll data, Treasury yields inched modestly higher and were just above unchanged as equities trimmed their declines by more than half.

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