Crescenzi: Payrolls-No Fodder for Treasury Rebound

The Treasury marketwon’t find much fodder to fuel a meaningful reversal of its early response to today’s payroll report; details of the report support the headline data.

As I've noted recently, it should be expected that better economic data such as today's payroll data will support risk assets at the expense of Treasuries for now, so long as economic data continue to improve without interruption. Eventually, attention will turn to the magnitude of the change in direction, which will restrain the performance of risk assets and steady Treasuries, mainly because the secular forces that will restrain growth are so strong.


As reported, payrolls fell 247k in July, 77k fewer than expected.

Net revisions to past months were up 43k. The unemployment rate fell for the first time since April 2008, to 9.4% from 9.5%, beating forecasts for an increase to 9.6%.

The decline was both because of a 247k decline in the size of the labor force, and a 267k drop of in the number of unemployed, which was the first decline since April 2008. The total number of unemployed is now 14.462 million, up from 7.2 million in December 2007.

The automobile sector likely distorted today’s data, just as it had the recent jobless claims statistics. The sector saw a 28k increase in employment following decreases of 22k and 23k in the previous two months.

Hence, the headline figure was probably boosted by at least 50k due to problems associated with adjusting for the atypical timing of the ups and downs of the automobile production cycle. This is the minimum that was expected, and therefore can’t be factored in much in terms of the market response. The factory sector’s job losses were 52k, about 50k fewer than expected and the smallest for the sector since July 2008, partly because of the impact of the automobile sector.

Temporary employment, a leading indicator of employment, fell by 10k jobs, the second month in three of moderation (in May, the decline was the smallest for this segment of employment since December 2007).

Government-sector employment played a role in the better-than-expected headline figure, but not significantly. Government employment increased 7k following a census-induced decline of 48k in June. The 7k gain is not significant for the government sector.

The number of people unemployed and not on temporary layoff (largely permanent job losers) fell for the first time since April 2008, by 6k workers following very large increases in previous months. The tally is now 7.880 million, up about 5 million from December 2007. The increase in the permanently unemployed will limit the scope for a large and quick recouping of the 7.5 million people that lost their jobs during the recession.

Average hourly earnings increased 0.2%, a tenth of a percentage point more than expected. The year-over-year change stayed at 2.5%, eight-tenths of a percentage point below the 20-year average. There may have been an upward bias in wages from the automobile sector. The month’s increase in the minimum wage did not occur until after the survey period.

The employment diffusion index, which measures the breadth of employment changes, increased to 30.1 from 28.6, its highest since September 2008 and up from the record low (dating back to 1991) of 19.6 in March. The increase suggests the number of industries shedding workers is falling.

Importantly, the aggregate hours index, which gauges the total number of hours worked, was flat in July, the first non-negative reading since August 2008. This suggests some stabilization of personal income, albeit at a very weak level.

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Tony Crescenzi
Tony Crescenzi

Tony Crescenzi is Senior VP, Strategist, Portfolio Manager Pimco. Crescenzi makes regular appearances on financial television stations such as CNBC and Bloomberg, and is frequently quoted across the news media. He is also the author of "Investing from the Top Down," "The Strategic Bond Investor," and co-author of the 1200-page book "The Money Market."