There was a chilling mix of job market-related data this week, until the payrolls report lit it all on fire on Friday. The employment components of both the manufacturing and nonmanufacturing ISMs sat in negative territory in July, and over the past three months on average. Historically, we often see short episodes of weakness in one component, but twin sub-50 readings (i.e., contraction) on this basis are consistent with recession. That is, since the late-1990s, there hasn’t been a twin negative reading that was not a recession; and no recession didn’t have twin negatives. One caveat today is the negative readings are still very shallow. Meantime, initial jobless claims continued to tick up to 260k in the July 30th week, while continuing claims grind higher.
But, while markets were increasingly pricing in a downturn and, therefore, eventual Fed easing, payrolls printed a twice-consensus 528k gain in July. Prior-month revisions added a net 28k to the tally, while the jobless rate fell at tick to match a 53-year low at 3.5%. Wage growth also remained firm, suggesting the job market is still drum tight, and the Fed indeed has quite a bit more tightening to do.
Even the roster of Fed speakers were seemingly on a mission this week to dial back some of the market enthusiasm over last week’s perceived pivot by Fed Chair Powell.
|Table 1 - Market Performance|
|Source: BMO Economics, Bloomberg|