- Dow Jones Industrial Average (DJIA) futures rose 225 points in early trading Thursday.
- Traders are cheering ‘record’ employment data with 3 million new jobs expected in today’s report.
- But analysts urge caution. There are reporting issues in the data and it doesn’t reflect newly re-fired workers.
All eyes are on today’s double-whammy jobs report. Beyond Thursday’s usual jobless claims data, we’ll also get the monthly Labor Department employment report. We’re expecting record numbers, which may explain why Dow Jones Industrial Average (DJIA) futures are up 225 points this morning.
The Labor Department report is expected to reveal a record 3 million new jobs created in June. That’s the most since records began in 1939. But Jonathan Golub at Credit Suisse warned investors to take these ‘record’ numbers with a grain of salt.
If you’re comparing the change in payrolls… those look brilliant. However, if you then say, how many people are still unemployed and how long will it take to get them back employed? That’s a very high number.
The headline figures will no doubt be impressive. But we shouldn’t “extrapolate them too much,” says Golub.
Under the surface, there are data-quality issues. A wave of newly re-fired employees won’t be included in today’s Labor report. The stubbornly high ‘continuing claims’ figure will also go missing.
Dow futures jump 225 points
The Dow Jones looks set to bounce back on Thursday after yesterday’s disappointing close. Dow futures were up 225 points (0.88%) at 5.40am ET. Positive vaccine news from Pfizer and BioNTech also boosted investor sentiment.
Today’s Labor report is a “mess”
Bloomberg authors Katia Dmitrieva and Reade Pickert aptly summed up the report, stating:
There’s no way around it: Thursday’s U.S. labor reports will be a mess.
The reporters cite a number of ‘data-quality issues’ whereby out-of-work Americans have been wrongly classified as ‘employed’. Fundamentally, today’s official rate is understating the true scale of the problem.
Despite the record numbers, we’re still 16.6 million jobs short of the pre-pandemic level. Almost half of all Americans are out of a job.
Has the stock market priced in re-fired workers?
Today’s Labor report also misses one crucial detail: business owners are now firing workers for the second time.
Re-opening plans in California, Texas, Florida, and even New York are beginning to roll back. Bars, restaurants, gyms, and shops are laying off their workers again.
Today’s Labor report won’t include these figures as the survey was conducted in the middle of the month.
One data point that might give us more insight is today’s ‘initial claims’ count. This weekly number is expected to come in above 1 million again – a number six-times higher than before the crisis began. And, according to Mark Zandi at Moody Analytics, these aren’t just low-paid jobs.
Job losses are starting to bleed to other sectors of the economy, income groups and different skill sets.
Companies in all sectors across America are announcing layoffs in a bid to save cash coming out of this recession. Employment figures out of the eurozone this morning also showed that jobless numbers are rising even as the countries exit lockdown.
Dow Jones needs to look longer term
Jonathan Golub at Credit Suisse says investors may be cheering the short-term bump while ignoring the long-term pain of getting people back to work.
The real big issue is that the number of people who remain unemployed is about 20 million . And while a lot of these folks are going to get jobs relatively quickly over the next year, it’ll probably take three-to-four years or longer before everyone has been laid off is going to be back in jobs.
Golub is referring to the continuing claims count – a measure of how many people are repeatedly receiving unemployment checks. That figure is expected to remain stubbornly high, around 19 million. His words echo sentiment across an increasingly worried Wall Street that stocks no longer reflect the underlying economy.
And there are more headwinds on the horizon. The government’s Paycheck Protection Program (PPP), which is designed to keep people on the payroll, will soon end. That could see a wave of fresh layoffs as business decide to cut costs.
The extra $600 weekly unemployment check will also vanish at the end of July, putting extra pressure on the newly out-of-work.
So, yes, today’s ‘record’ employment numbers look fantastic. But don’t forget to zoom out and look at the big picture.