U.S. stocks handled a worthless jobs report pretty well, particularly thanks to a late-session rally.  Even at the day’s worst though, the broad market was only off 1.45%.

Considering nonfarm payrolls rose just 18,000 in June (which may as well be zero), one would think stocks to trade 2-3% lower based upon the need for a snap back after May’s very weak results, not to mention the necessary condition of 300K/month for a long time to get the jobless rate much lower.  But this is a QE world and when a number as seminal as a jobs number produces a virtual goose egg, then there is that belief among traders that the Fed will yet again waive that liquidity wand.

All 10 of the major industry groups closed lower on Friday.  Telecom, utilities and consumer staples out-performed.  Financials, industrials and consumer discretionary shares were the hardest hit.

And, as stocks fell so did crude and wholesale gasoline – oil down to $96.25/bbl and gasoline to $3.10 on Friday.  That’s not much relief but don’t worry, stock futures are taking a drubbing in pre-market trading so crude is down some more – to $94.91/bbl; wholesale gasoline to $3.06.

It would be nice to see stocks rise without energy prices following suit, but this is one of the consequences of QE.  You’d think we could get crude down to at least $70/bbl (that’s not asking much) considering we’ve got 9.2% official unemployment, 16.2% under-employment and a pathetic 2.0% growth environment.

For the week, the S&P 500 Index managed a fractional gain, up 0.2% thanks to Thursday’s 1.05% rally – a move that Friday didn’t fully wipe out.

Market Activity for July 8, 2011

Sector Activity for July 8, 2011

June Jobs Report

The Labor Department reported that total payrolls rose just 18,000 in June (+105K was expected) after the previous two reporting months were revised down by 44,000 (the May reading was cut in half to show just 54K increase in payrolls and April cut to 217K from 232K).   I want to think there will be some snap back in July, but these downward revisions are not a good indication.  Private-sector payrolls rose just 57,000 (expected to rise 132K) after a downwardly revised 73,000 in May (previously reported at +83K).

Goods-producing industries increased payrolls by just 4,000 (well shy of the 17K three-month average).  Manufacturing added just 6,000 and construction cut another 9,000.

Service-providing industries added 53,000 (half the 107K three-month average).  Trade & transportation increased payrolls 17,000 (half the three-month average); retail added just 5,000 (one-quarter the three-month average); finance cut 15,000 payrolls (the three-month average is zero); education & health came in at 0 (three-month average is +19K); but leisure & hospitality increased payrolls by 34,000 (three times the three-month average).

And on these last two segments. This is the first time since the financial crisis the education & health has failed to add jobs – and we’ve warned, as this component has led the job recovery, that it will wane as state and local government take the necessary steps to curtail spending.  On leisure and hospitality, this is one of the lowest-paying segments of the job market so I don’t consider the pickup much help.

Government cut another 39,000 positions, most coming from state and local government as the federal government cut 14,000.

The official unemployment rate rose for a third-straight month, back up to 9.2% from the 9.1% in May.  The household survey printed a huge 445,000 decline, which is the largest since December 2009 (this survey captures the self-employed and is used to calculate the jobless rate).  This offset the 272,000 people that removed themselves from the labor force; hence, the rate rose.

The U6 unemployment rate (which measures under-employment) rose back to 16.2% from 15.8% in May.  This measure includes those working part-time involuntarily (can’t find full-time work) – there are 8.6 million of these people.  Full-time employment slid another 435,000 in June – down 603,000 over the past year.

The long-term unemployment picture continued to deteriorate.  The average duration of unemployment made another new all-time high of 39.9 weeks.

The percentage of those unemployed who have been out of work for at least six months fell to 44.4% from 45.1% in May, but only because the total number of unemployed increased 173,000.  The absolute number rose slightly to 6.3 from 6.2 million people.  Thirty percent of the unemployed have been out of work for more than a year, or 4.3 million people.

Average hourly earnings came in unchanged and the average weekly hours figure slipped to 34.3 from 34.4 in May.

We needed a huge snap back from the lousy May jobs numbers; instead we got worse.  I’ve got to think there will be a bounce in July, but doubt it will be anything close to what we need.

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900