Podcast: July 2010 Jobs Data

SEI Global Fixed Income Management manages fixed-income strategies for SEI’s Managed Account Program (MAP) and Integrated Managed Account Program (IMAP).

Welcome, my name is Sean Simko. I am Managing Director of SEI Global Fixed Income Management. Today’s commentary focuses on the July jobs data, including the nonfarm payroll number and the market’s initial reaction.

Mixed economic data was capped off by July’s nonfarm payroll report. The current uncertain environment affects not only the consumer but also employers and their hiring practices. Employers remain cautious, juggling the uncertainty around new government regulations as well as the threat of added healthcare costs. Instead of adding to payrolls, companies are increasing the workweek, which should help the consumer and the employed. However, it doesn’t help those searching for employment—if anything, it hinders the process.

July’s payroll release disappointed once again. Bloomberg consensus estimates forecast a decrease of 65,000 jobs, but these included a wide range between a loss of 160,000 and a gain of 10,000. The headline number showed a decrease of 131,000 jobs, which followed a previous decline in June. The underlying components of the report didn’t paint a positive picture. Private payrolls grew by 71,000, although the excitement was muted since last month’s private payroll number was revised downward from 83,000 to 31,000. Manufacturing payrolls increased by 36,000, beating expectations. Construction figures were disappointing, showing a decrease of 11,000. Temporary jobs declined by 6,000 for the month, adding to labor market concerns. Government payrolls fell by 202,000, driven largely by federal job cuts. The report had a few bright spots, though, such as an extended workweek and the unemployment rate holding steady at 9.5%. The bottom line, though, is that the job market is still in a difficult place.

The soft labor report fueled an extended rally within the Treasury market. The overriding tone in the market was once again a flight to quality as doubts circulated about the overall health of the economy. The curve flattened after the report’s release, with the 10-year yield falling to 2.82%, its lowest level since April 2009. Prices for the two-year also hit new highs, as the yield moved to a new cycle low (yields move inversely to prices). Immediately after the report, the two-year traded at 49 basis points before settling in around 51 basis points.

We remain optimistic that a double-dip recession is not in the cards. But we also continue to be cautious, as we realize that economic growth prospects are going to remain low. The state of the labor market helps confirm that the lack of job growth will have a negative effect on other areas of the economy, translating into less consumption and slower economic growth. Even so, mixed data within the economy and a lackluster labor market could provide the backdrop for a continued rally within the Treasury market.

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Thank you.