Payrolls Post-Mortem: Stocks Soar, Rate-Cut Odds Plunge But There’s Something ‘Disturbing’

Authored by Peter Tchir via Academy Securities,

The headline data for NFP was much stronger than expected at 177k.

That doesn’t match well with JOLTS which has been indicating weaker conditions (and it is an extra month behind), and it doesn’t tie in with ADP which was a very weak 62k.

Downward revisions of 58k take some of the umph out of the report.

The Household part of the survey (which drives the Unemployment rate) added 305k Full-time jobs and 56k in Part-time jobs (which helped the underemployment rate drop to 7.8% from 7.9%). The unemployment rate of 4.2%, while unchanged, is impressive as the labor force increased by 0.1% to 62.6%.

It was also encouraging that hourly earnings came in a 0.2% for the month (healthy but not inflationary) and hours worked, often a precursor for more hiring, was 34.3 hours this month and was revised up to that figure for last month as well.

The Birth/Death model accounted for 393,000 jobs!

Apparently, in the face of economic uncertainty, a lot of new businesses were started?  

That was the biggest number since 2023! The prior 5 months had averaged -10k.

It is a bit “disturbing” (to me) that a number that is derived from estimations plays such an outsized role in the report.

126,000 professional/business services jobs were created? I guess a lot of people set up businesses to help with taxes?

What are the odds that a lot of people signed up EIN’s (Employer Identification Number) so they could do something in the gig economy?

I am highly suspicious of the accuracy of this number, but, unfortunately, policy makers seem to take it at face value, only to ignore it, when it is eventually reduced significantly, during annual or quarterly reviews.

Any Risks?

Weirdly, I see some risks from this report.

• Policy will be made based on the strength of the report, which, after revisions and expressing any doubt whatsoever about the birth/death model additions, wasn’t so great.

• The Fed has been given ammunition to remain hawkish next week. Had we been under 100k, there would have been reason to expect a very dovish Fed, and maybe even a rate cut.

• The biggest risk, as I see it, is this encourages the administration to be more aggressive on their tariff strategy, as this could be taken as an indication that their tariff strategy is working and is creating jobs (though 1k was lost in manufacturing). Given how the market responded overnight to news that China would be open to talks, any double down on tariffs (rather than deal making and backtracking) would not be great.

Bottom Line

Not good for bonds, pushes the Fed put further away… [ZH: June rate-cut expectations plunged]

Should be decent for risk, but risk will remain primarily driven by tariffs, trade deals and the big spending bill…

…all of which will determine the direction of the economy for months or even years.