Why the Jobs Report Was so Shocking

It’s Friday and that means it’s time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don’t worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let’s take a look at this week’s big headlines…

July Unemployment RateReport

On Friday, the Labor Department announced that 209,000 new payroll jobs were created in July. This was significantly higher than economists’ consensus estimate of 180,000. The unemployment rate declined to 4.3%, the lowest level in 16 years. Average hourly earnings rose 0.3% by $0.09 to $26.36 per hour. The labor force participation rate also rose by 0.1% to 62.9% in July. Overall, the details in the payroll report were very encouraging.

I should add that on Wednesday, ADP reported that 178,000 private payroll jobs were created in July. According to ADP, companies with 500 or more employees added 45,000 jobs; companies with 50 to 499 employees added 83,000 jobs; companies with fewer than 50 employees added 50,000 jobs. So the job growth was the strongest with medium-sized companies.

Balace of Trade Report

The Commerce Department announced that the trade deficit declined 5.9% in June. The trade deficit is now at an eight-month low. Breaking it down, exports rose by 1.2% to $194.4 billion, the highest level since late 2014. Imports declined 0.2% to $238 billion as imports of crude oil and cell phones declined. A smaller trade deficit means that the second-quarter GDP calculation will likely be revised higher, so the U.S. appears to be getting closer to 3% GDP growth.

ISM Manufacturing Index

On Tuesday, the Institute of Supply Management (ISM) announced that its manufacturing index slipped to 56.3 in July. While this was down slightly from June’s reading of 57.8, that was the highest level in three years. Since any reading over 50 signals an expansion, the manufacturing sector remained very healthy in July. In fact, fully 15 of the 18 industries surveyed reported growth in July, which is very positive.

ISM Services Index

On Thursday, the ISM also announced that its service sector index dropped to 53.9 in July, down from a more robust 57.4 in June. There was a disappointing ISM service number, since it was the lowest level in 11 months and economists were expecting a reading of 56.9. However, any reading over 50 still signals an expansion and midsummer slowdowns are not uncommon, so I expect that the ISM service index will rebound in the upcoming months.

That’s all I have for you this week; I’ll be in touch again next week with the latest ratings updates out of Portfolio Grader.

Have a great weekend,

Louis Navellier

Louis Navellier

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