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Economic Week in Review: June jobs jump

July 05, 2013

More jobs than expected were added to the nation's payrolls in June and in the prior two months. The unemployment rate remained unchanged, however, as more people moved from the sidelines to actively look for work. The upbeat job report was issued as other signs suggested that the pace of economic growth is hardly robust.

For the week ended July 5, 2013, the S&P 500 Index rose 1.6% to 1,632 (for a year-to-date total return—including price change plus dividends—of about 16%). The yield on the 10-year U.S. Treasury note rose 21 basis points to 2.73% (for a year-to-date increase of 95 basis points).

Service-sector companies help boost national payrolls

Some 195,000 jobs were added to payrolls in June, well above expectations, while previous reports on April and May payrolls were revised upward significantly. The unemployment rate, which is based on a separate survey, remained steady at 7.6%, as new hires were offset by an increase in people looking for work. Helping swell payrolls: an improving housing market and increases in service employment, driven by consumer spending. However, manufacturing jobs declined for the fourth straight month (slowing global economies were a factor). Government jobs declined by 7,000, reflecting a decline in federal and, especially, state payrolls.

"The June jobs numbers and revisions for April and May are a positive sign for the economy," said Vanguard economist Andrew J. Patterson. "Average monthly job growth over the first six months of the year is around 200,000—right at the level that must be sustained if we are to see meaningful drops in the unemployment rate over time."

U.S. unemployment rate

Two key economic gauges reflect an uphill battle

In different ways, the Institute for Supply Management's latest surveys of service and manufacturing businesses reinforced the picture of a struggling economy. In an indication of slowing expansion in the service sector, ISM's nonmanufacturing index of business activity fell to 52.2 in June; this was the index's third drop in four months. (A reading below 50 indicates contraction; above 50, expansion.) And even though June's reading of ISM's companion index of manufacturing reversed three months of decline that had sent it below the growth threshold, the result was just barely above 50. Looking at the components of each index reveals mixed trends about employment: Nonmanufacturing employment increased after four straight monthly declines, while manufacturing employment contracted for the first time since September 2009.

Strengthening consumer demand helps widen May's trade deficit

The trade deficit widened more than expected in May. One factor was slower demand for U.S. exports, a result of slowing economies in Europe and in China. The other factor was rising demand for non-oil imports, powered by U.S. consumers. Analysts viewed the growth in demand for imports as a sign of a strengthening U.S. economy. Ironically, the resulting wider trade balance may detract from overall U.S. economic growth.

Factory orders and construction spending rise

Factory orders rose 2.1% in May. Helping pump up results was a large increase in aircraft orders, as expected. Orders for "core" capital goods, which exclude aircraft and military equipment and are viewed as a clue to future business expansion, rose for the third straight month. May's 0.5% increase in construction spending was bolstered by an upswing in residential construction, primarily for multifamily homes. Private nonresidential construction declined while public construction rose for the month (though down 4.7% from a year ago) even as state and local governments continue their belt-tightening in the aftermath of the recession.

The economic week ahead

Reports on consumer credit (Monday) and producer prices (Friday) are on tap. Particularly closely watched will be the release of the minutes of the Federal Open Market Committee (Wednesday).

Summary of major economic reports
Date Report Actual
value
Consensus
expected value
10-year note yield S&P 500 Index
July 1 Construction Spending (May)
Source: Commerce Department
+0.5% +0.6% –2 bp +0.5%
  ISM Index (June)
Source: Institute for Supply Management
50.9 50.5    
July 2 Factory Orders (May)
Source: Commerce Department
+2.1% +2.0% –2 bp –0.1%
July 3 Initial Jobless Claims (week ended June 29)
Source: Labor Department
343,000 345,000 +4 bp +0.1%
  U.S. Trade Balance (May)
Source: Commerce Department
–$45 billion –$40.8 billion    
  ISM Non-Manufacturing Index (June)
Source: Institute for Supply Management
52.2 54.0    
July 4 Independence Day—U.S. financial markets closed    
July 5 Unemployment Rate (June)
Source: Labor Department
7.6% 7.5% +21 bp +1.0%
  Nonfarm Payrolls (June)
Source: Labor Department
+195,000 +166,000    
      Weekly change +21 bp +1.6%

bp=basis points. 100 basis points equal 1%. For example, if a bond's yield rises from 5.0% to 5.5%, the increase is 50 basis points.

Notes

  • The economic statistics presented in this report are subject to revision by the agencies that issue them. For more information on the reports mentioned in this article, read our Guide to major U.S. economic reports.
  • All investing is subject to risk, including possible loss of the money you invest.
  • Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
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