Good Afternoon!
I hope you had a great 4th of July Day and Weekend. We hung out at the pool on Friday where our 3.5-year-old son discovered the diving board and jumped off about 30 times in less than an hour. It was a blast! On Saturday we celebrated our daughter’s 1st Birthday with our families and a few friends. Overall, it was a great and relaxing weekend with family!
Last week, I highlighted the perpetual trend of the 10 YR treasury each month and how the deteriorating economic data sends yields down until the First Friday of the next month where we are hit with a ““better than expected” BLS Jobs Report. Well, I unfortunately am reporting that it happened again, and for the 10th month in a row to boot. We were on a great trend down and with favorable jobs data we would have seen yields drop dramatically and subsequently mortgage rates. However, the headline jobs number came in decent and the 10 YR went from 4.20% on Wednesday morning to 4.39% as of this morning. More on the jobs data in the next sections. Unless something unforeseen happens the next 4 weeks, we will have to wait until Friday August 1st for the next jobs report to see if we can break some heavy resistance levels at 4.20% and 4.07%.
1 Year Look at the 10 YR Yield for today followed by my chart from last week:
Last Week’s Market Commentary:
- Strong June Jobs Report Reinforces Fed’s Cautious Stance
- June’s employment report from the Bureau of Labor Statistics beat expectations, with the U.S. economy adding 147,000 jobs—well above the forecasted 110,000. Additionally, April and May job totals were revised upward by a combined 16,000, breaking the recent trend of downward revisions.
- Digging into the details, a large share of the job gains came from the public sector, with government employment up 73,000. Within that, state and local education accounted for 63,000 jobs. The unemployment rate edged down slightly, from 4.2% to 4.1%.
- The Federal Reserve closely monitors both inflation and labor market data as part of its dual mandate: maintaining price stability and maximum employment. Striking the right balance between these goals is especially challenging amid growing economic uncertainties, including new tariff policies.
- Generally, strong labor data like June’s report makes the Fed less likely to cut interest rates, especially if inflation remains sticky. Conversely, evidence of a slowing economy could open the door to easing.
- So far in 2025, the Fed has held the Fed Funds Rate steady at 4.25% to 4.5%, adopting a cautious “wait-and-see” approach. While some signs of labor market cooling are beginning to emerge, the stronger-than-expected June report supports the case for keeping rates unchanged at the Fed’s next meeting later this month.
- Private Payrolls Unexpectedly Decline in June, per ADP
- Completely contradicting the BLS report on Thursday, Wednesday’s ADP Jobs Report show that the private sector lost 33,000 jobs in June, sharply missing expectations for a 95,000 job gain and marking the first monthly decline since March 2023. Additionally, May’s already modest job growth was revised down from 37,000 to 29,000.
- Small businesses were hit the hardest, shedding 47,000 jobs, while mid-sized firms lost 15,000. Large employers were the only segment to post gains, adding 30,000 positions.
- By industry, leisure and hospitality led with 32,000 new jobs, despite signs of softening in travel demand. On the other hand, professional and business services saw a steep decline of 56,000 jobs, and education and health services dropped by 52,000.
- Wage growth showed a modest slowdown—4.4% year-over-year for existing employees and 6.8% for job changers.
- According to Dr. Nela Richardson, ADP’s chief economist, while layoffs remain uncommon, many employers are showing a “hesitancy to hire and reluctance to replace departing workers,” which led to last month’s job losses. Still, she emphasized that the slowdown in hiring hasn’t yet impacted wage growth.
- Continuing Jobless Claims Near 2 Million as Labor Market Shows Strain
- Initial jobless claims fell modestly last week by 4,000 to 233,000, but the figure remains elevated compared to earlier this year. The more telling sign of labor market pressure lies in continuing claims, which held steady at 1.964 million—a level not seen consistently since late 2021.
- Continuing claims have now remained above 1.9 million for six consecutive weeks, and over 1.8 million for more than a year, highlighting prolonged challenges for job seekers.
- The sustained combination of elevated initial claims and high continuing claims points to persistent softness in the labor market. Since unemployment benefits typically expire after 26 weeks, the fact that so many people are still receiving benefits—or potentially dropping off without finding work—suggests a slower hiring pace and deeper structural weakness beneath the surface.
Dissecting the BLS Jobs Report with Help From David Rosenberg from Rosenberg Research
- Despite the media headlines, this was not a Strong Jobs Report. While the headline nonfarm payroll number surprised to the upside—rising 147,000 in June versus expectations of 106,000—a closer look reveals significant underlying weakness.
- The private sector added just 74,000 jobs, well below the 100,000 consensus, and marking the softest gain in eight months. To make matters worse, May’s private payroll figure was revised slightly lower, from 140,000 to 137,000.
- Furthermore, The Birth-Death model, a controversial seasonal adjustment meant to account for business formation and closures, contributed 76,000 jobs to June’s total. This figure is highly questionable given the near cycle-high levels of business bankruptcies and a clear slowdown in new business formation. Adjusting for this model, private sector employment likely contracted modestly.
- Nearly all of the job growth came from sectors largely insulated from economic cycles—specifically state and local government, and healthcare, education, and social services. The rest of the labor market—the two-thirds that typically respond to economic conditions—was essentially flat.
- The spotlight was squarely on the headline unemployment rate, which unexpectedly dipped to 4.1% from 4.2%, rather than rising to 4.3% as forecasted. But that drop wasn’t driven by a stronger labor market—it was largely a result of a decline in labor force participation.
- Average hourly earnings came in soft, rising just 0.2% month-over-month versus a 0.3% forecast, pulling the year-over-year wage growth down to 3.7% from 3.8%. Average hours worked declined, and as a result, average weekly earnings — a key proxy for income — fell by 0.1% on the month. Further pressure on wages is coming from a growing number of unemployed individuals who remain in the job market longer. The median duration of unemployment increased to 10.1 weeks (up from 9.5 weeks in May), while the mean rose to 23.0 weeks. Perhaps most tellingly, the share of unemployed workers job-hunting for more than 26 weeks climbed to 23.3%, the second highest level in the past three years.
- The Household Survey reported just a +93,000 job gain, which aligns more closely with ADP’s weaker private payrolls data and is free from distortions like the Birth-Death model. And even that modest gain looks shaky: it was heavily supported by a +202,000 surge in multiple jobholders, a classic recessionary signal.
- Take off the rose colored glasses and you will see that May’s Household Survey showed a -696,000 drop, and even after June’s slight rebound, employment in this survey is running at a -0.8% annual rate since the start of the year.
This Week’s Market Commentary:
- After a busy week last week, this week is very quiet with key highlights including the release of the Fed’s latest meeting minutes on Wednesday and weekly unemployment claims on Thursday. Investors will also be closely watching Treasury auctions – the 10-year Note on Wednesday and the 30-year Bond on Thursday – for insights into market demand and appetite.
This Week’s Reports:
- MON – Fed’s Balance Sheet
- TUES – NFIB Small Business Optimism Index, 3-Year Note Auction, Consumer Credit
- WED – MBA Mortgage Applications, 10-Year Note Auction, Fed Minutes
- THURS – Jobless Claims, 30-Year Bond Auction
- FRI – No News
