The Bureau of Labor Statistics' Employment Situation Summary report for July showed 162,000 jobs added to the economy, a drop from 195,000 in June and over 20,000 below expectations. The headline unemployment rate dropped to 7.4% from 7.6% last month.
In a broad sense it was the worst possible combination as far as the Federal Reserve is concerned. As often discussed the FOMC has set a goal of driving unemployment below 6.5% as justification for maintaining stimulus. A combination of weak underlying numbers with a falling rate threatens to force the FOMC's hand on ending QE without real sustainable economic improvement.
The fact that many think that would be a good thing is somewhat besides the point.
Jim Paulsen of Wells Capital Management remains relatively sanguine on the overall economy even as he concedes today's data was a disappointment. "You've got to put this in the context of the data stream that's been coming out," Paulsen says ticking through solid GDP data, good numbers from ADP, and strong housing figures. "The economy continues to plod along and is probably growing somewhere with a 2-handle on it [on GDP], and I don't see where today's report changes that."
Average hourly wages fell 2-cents and hours worked may have fallen, but Paulsen thinks the most important number of the week was the Institute of Supply Management's manufacturing index coming in at 55.4%. It was the highest level since June of 2011 and well above analyst expectations of 52%. Anything above 50% indicates economic expansion.
"Finally the manufacturing sector is starting to recover," Paulsen explains. "If you get manufacturing back with housing already doing better, we're going to feel that in the economy including jobs in the latter half of this year."
There's been enough improvement elsewhere to dismiss July's non-farm payroll report as a one-off negative. More skeptical observers will have to wait for next month's non-farm payroll data to see if a negative trend is starting to take shape.
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