June Non-Farm Payrolls Blow Away Estimates, Boosted By Summer and Part-Time Jobs

Non-Farm Payrolls rose faster than expected in June as teenagers began to take summer jobs. The unemployment rate remained flat in the month while manufacturing payrolls slumped.

Stocks gained as bonds and precious metals sold off on the news as markets began to price in more or sooner tapering of asset purchases from the Federal Reserve.

Non-Farm Payrolls

For the month of June, the economy added 195 thousand jobs, beating the forecast of 165 thousand by a solid 30 thousand or 18 percent. May's figure was revised higher to 195 thousand as well from 175 thousand previously estimated and the net two month revision added 70 thousand jobs, bringing the total net beat (headline beat plus total revisions) to 100 thousand.

Private payrolls grew strongly in June despite an expected decline. Private payrolls grew 202 thousand in June, beating the expected 175 thousand by 27 thousand or 15 percent, while May's figure was revised 16.3 percent higher to 207 thousand.

Manufacturing payrolls were a notable weak point in the report as manufacturing payrolls declined 6 thousand in June compared to an expected flat reading. May's figure was revised slightly higher to show a contraction of manufacturing payrolls of 7 thousand vs. the initially reported drop of 8 thousand. Earlier this week, the ISM Manufacturing Index hinted at manufacturing payrolls weakness as the employment sub-index of the ISM dropped to 48.7 from 50.1.

Unemployment Rate

The unemployment rate unexpectedly remained constant in June at 7.6 percent despite an expected drop to 7.5 percent. However, rounding to more decimal places, the unemployment rate rose ever so slightly from 7.555 percent to 7.557 percent as the labor force grew 177 thousand people while the number of persons claiming unemployment benefits rose 17 thousand.

Notably, the unemployment rate for teenagers aged 16-19 fell from 24.5 percent to 24.0 percent as many teenagers began to find summer employment opportunities. Also, the number of people accepting part-time jobs for economic reasons (because they cannot find full time employment) jumped a whopping 322 thousand, making up for most of the jobs gains.

Jobs By Sector

In the goods-producing sectors, manufacturing payrolls were notably weak while construction and autos jobs gains were strong. The economy added 13 thousand construction jobs in June vs. a gain of 7 thousand for may while auto payrolls rose 5.1 thousand after rising 4.8 thousand in May.

In the services sectors of the economy, jobs gains were led by low-income jobs in hospitality and leisure, retail trade, and healthcare services. Hospitality and leisure payrolls rose a sharp 75 thousand in June after gaining 69 thousand in May and 60 thousand in April while retail trade payrolls gained 37.1 thousand in June. Healthcare also added 23.5 thousand jobs.

Taken with the drop in the teenage unemployment rate and the rise in part-time workers for economic reasons, the gains in retail and hospitality jobs indicate that many of the gains in June were due to teenagers taking summer jobs as school ends. Thus, the headline number may overstate the health of the employment market. Besides, many of the jobs added were by those with less than a high school diploma, furthering this thesis that the jobs growth was mostly summer jobs.

Hourly Earnings

The average work-week was flat at 33.7 hours, the same as it has been in each of the last four months. Meanwhile, average hourly earnings rose to $20.14 in June from $20.09 in May.

Markets React

Markets reacted sharply to the news as bonds sold off and precious metals dropped. U.S. equity futures initially rose as high as 1,630.75 from 1,621 before the data release but have since sold off back towards 1,622. The ten-year treasury bond yield rose a massive 19 basis points to 2.69 percent from 2.5 percent.

Commodities were mixed on the news as energy futures gained on the stronger payrolls data while precious metals slid. WTI crude futures gained 0.76 percent to $102.01 per barrel while Brent crude futures rose 1.29 percent to $106.90 per barrel. However, natural gas futures dropped 1.06 percent.

Metals were weak, especially precious metals, as gold extended losses to 1.9 percent or $24.50, now trading at $1,227.40. Silver was weaker than its yellow cousin as silver futures fell 3.4 percent to $19.03 per ounce. Copper also fell 2.17 percent.

The dollar reigned after the report as the Dollar Index gained 1.44 percent on strength against all major trading partners. The British pound was notably weak, dropping 1.23 percent against the dollar to 1.4886 while the EUR/USD fell 0.8 percent to 1.2811 and the USD/JPY gained 0.87 percent to 100.91. The dollar was also stronger against the Aussie, the Canadian dollar, and the Swiss franc.