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Employment Data Casts Doubt on Dire GDP Report

There were a lot of data last week but the employment report was all that really mattered.

Robert Johnson, CFA 09 August, 2016 | 16:38
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There were a lot of data last week (1-5/AUG) but the employment report was all that really mattered. The U.S. market had slipped in seven of the past eight sessions through Thursday as slowing GDP growth weighed on investors' minds. However, the market rallied about 1% on Friday as the second exceptionally strong employment report in a row cast some doubt on the glum second-quarter GDP report. When the two reports diverge it is often the employment report that gets it right. That's why most of this week's report is focused on employment data.

Employment Data Tells Two Different Stories, Depending on Your Time Perspective

Comparing the July employment report to the June employment report, there was a lot to like. With 255,000 jobs added in July, the report was well above the consensus of 185,000 jobs and the 12-month average of 204,000. Furthermore, adjusting for the Verizon striking workers' return to work, the 255,000 workers added was every bit as strong as the June report, making for a strong back-to-back performance.

The breadth of improvements across sectors was also unusually good, with only for-profit education losing much ground relative to recent trends. The mix of jobs added was biased to high-paying jobs that combined with underlying worker shortages and a bump in some state minimum wages drove average weekly wages up by 0.3% month to month and 2.6% year over year. Adding to the good news, employment growth was revised modestly higher for May and June.

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About Author

Robert Johnson, CFA  Robert Johnson, CFA, is director of economic analysis with Morningstar.

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