June's jobs report was stellar, but investors shouldn’t be too starry-eyed

Brian Nick

The last week’s market highlights:

Each week, we present our featured topics in the context of the major themes listed below from Nuveen’s 2020 Midyear Outlook:
  • U.S. economy: Looking for a full recovery by late 2021, albeit with high unemployment.
  • Global economy: More monetary and fiscal stimulus is needed to keep businesses afloat.   
  • Policy watch: No Fed interest rate hikes until well after the economy has healed.
  • Fixed income: Lean into higher-risk assets to generate income.
  • Equities: Focusing on quality across the board (and dividend payers, too).
  • Asset allocation: Consider benefits of active management amid idiosyncratic opportunities.

Quote of the week:

“It's like a bird. If he knew what he was doing, he would fall.”
‒ Carl Reiner

Plenty of Fourth-of-July fireworks in June’s jobs report…

Last Friday brought the release of another blockbuster employment report from the U.S. Labor Department. The economy added 4.8 million jobs in June after an upwardly-revised 2.7 million in May, as businesses reopened and welcomed back workers. At the same time, the unemployment rate fell from 13.3% to 11.1%, and the labor force participation rate rose to 61.5% from 60.8%. All of these numbers beat consensus estimates by a considerable amount.

Meanwhile, the “U-6” underemployment rate, which includes part-time workers who want to work full-time, dropped from 21.2% to 18%. There were slightly more than 9 million such workers in June, down from 10.6 million in May. Lastly, the percentage of people who self-identify as “temporarily” unemployed dipped below 60% in June, from 73% in May — indicating that many furloughed workers returned to their jobs.

…but also some rain on the parade

Despite these welcome improvements, there are caveats to June’s headline-grabbing (and backward-looking) numbers. Last month’s employment report captures the state of the labor market at what may turn out to be its strongest point in the recovery. That’s because the Labor Department collects monthly payrolls data in the middle of the month — in this case, before the sharp spike in COVID-19 cases that has forced states in the Sun Belt and elsewhere to pause or reverse their phased re-openings. Given the potential impact these renewed restrictions may have on the pace of the recovery this summer, we would be surprised to see another monthly jobs report anywhere near as good as this one for the balance of the year.
Adding to that gloomy forecast are some higher-frequency data points that provide a better “real-time” picture of the labor market. The number of hours worked per week, for example, was trending poorly at the end of June,6 particularly in markets where the virus has returned in force. And weekly first-time unemployment claims, though still gradually decreasing from peak March levels, have now clocked in at above 1.4 million for 15 consecutive weeks.7 Lastly, continuing unemployment claims ticked up last week, their first increase since before Memorial Day.8 Bottom line: layoffs are still happening, state insurance systems remain stretched and very large numbers of people continue to rely on the $600/week federal supplement that expires at the end of July.
  1. Wall Street Journal
  2. FactSet
  3. Wall Street Journal
  4. Barclays Live
  5. U.S. Treasury Department
  6. Homebase
  7. U.S. Employment and Training Administration via FRED
  8. U.S. Employment and Training Administration via FRED
This material is prepared by and represents the views of Brian Nick, and does not necessarily represent the views of Nuveen LLC, its affiliates or other Nuveen staff.
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