Friday, August 7, 2020
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Another negative sign ahead of a crucial jobs report.
After a strong rebound in May and June, the labor market appears to have taken a step back in July.
On Thursday, the latest job cut data from job placement firm Challenger, Gray & Christmas showed a 54% increase in job cuts last month after two months of declines after an early spring surge.
In July, some 262,649, jobs were cut, according to Challenger, Gray, the third-largest monthly total ever behind April’s 671,129 and May’s 397,016. The report showed that 77,092 of the announced cuts cited market conditions while COVID-19 caused 63,517 cuts in July. Some 60,831 job cuts were due to a demand downturn and 17,069 cuts were due to voluntary severance/buyouts.
Challenger, Gray notes that COVID-19 is the reason for more than 1 million job cuts so far this year.
Later this morning, the July jobs report is expected to show nonfarm payrolls grew by 1.5 million last month, which would bring job recoveries over the last three months to nearly 9 million.
But between discouraging jobless claims data during the jobs report reference week, a bad reading from the Census Bureau’s Household Pulse survey last month, a rise in the number of permanent business closures, a below-expectations private payroll report from ADP, and now Challenger, Gray’s data, the labor market at best cooled off in July. And perhaps did worse than that.
“We believe the labor market reached an inflection point in July, starting what will likely be a slower phase of recovery,” said Lewis Alexander, chief U.S. economist at Nomura.
“As new COVID-19 cases surged across the US in late June and early July, the pace of economic recovery slowed across a number of high frequency indicators...While most high-frequency indicators were flat or slightly increasing in July, two new labor market surveys introduced to track the impact of COVID-19 on US households showed a notable deterioration, raising the risk of an outright decline in employment,” Alexander adds. Alexander expects nonfarm payrolls grew by 550,000 in July.
Sam Bullard, senior economist at Wells Fargo, said in a note Thursday that he expects a more positive reading of 1.7 million jobs created in July, but adds that “questions around the strength and duration of the economic rebound are increasing given the recent upswing in new virus cases in the South and Sunbelt states.”
“This has intensified the uncertainty about whether state & local economies can continue to recover, keeping the markets’ focus squarely on the dashboard of labor market indicators,” Bullard adds.
So while investors have certainly remained constructive on the overall environment with the S&P 500 within a few percentage points of a record close and the Nasdaq hitting a record high this week, most of the economic data we’ve gotten in recent weeks points to the economy hitting a new phase in its recovery.
What to watch today
8:30 a.m. ET: Change in non-farm payrolls, July (1.48 million expected, 4.8 million in June)
8:30 a.m. ET: Change in private payrolls, July (1.176 million expected, 4.767 million in June)
8:30 a.m. ET: Change in manufacturing payrolls, July (261,000 expected, 356,000 in June)
8:30 a.m. ET: Unemployment rate, July (10.5% expected, 11.1% in June)
8:30 a.m. ET: Average hourly earnings, July year over year (4.2% expected, 5.0% in June)
8:30 a.m. ET: Average hourly earnings, July month over month (-0.5% expected, -1.2% in June)
8:30 a.m. ET: Labor force participation rate, July (61.8% expected, 61.5% in June)
10:00 a.m. ET: Wholesale inventories, June month over month final (-2.0% expected, -2.0% prior)
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