Banner Day: U.S. Adds More Jobs Than Expected; Trade Deficit Drops

U.S. equity markets are rallying at the mid-session in reaction to a stronger-than-expected headline number in the U.S. Non-Farm Payrolls report. However, Treasury yields are weaker as Average Hourly Earnings came in soft. The drop in yields is making the U.S. Dollar a less attractive investment.

According to a government report on Friday, the U.S. labor market continued to power forward in June, adding another 200,000 jobs. Traders had priced in an increase of 195,000.

In addition to June’s surprise jump, the Bureau of Labor Statistics revised April’s count up from 159,000 to 175,000 and May’s from 223,000 to 244,000, a total of 37,000 more than initially stated.

Looking further into the report, the unemployment rate rose to 4 percent after holding steady at 3.8 percent, its lowest level since 1969.

The government said the increase in the unemployment rate came due to a rise in the labor participation rate, which increased 0.2 percentage points to 62.9 percent as 601,000 people came off the sidelines and re-entered the labor force. A more encompassing measure of unemployment that includes discouraged workers and those at part-time jobs for economic reasons also rose two-tenths, to 7.8 percent.

Finally, the impressive gain in the number of new hires provided little help to wages. Average hourly earnings rose 2.7 percent year over year, slightly below expectations of a 2.8 percent increase.

Markets Response

Stocks jumped on Friday, riding the wave of the robust jobs report. Traders said the report was more encouraging than discouraging in the wake of an escalating trade war between the U.S. and China.

Additionally, the strong report along with the revision in April and May, gives the Fed more support for its plan to raise interest rates at least two more times.

At 1647 GMT, the blue chip Dow is up 181.92 or 0.73% at 24356.74. The benchmark S&P 500 Index is trading 2736.61, up 23.39 or 0.85% and the tech-based NASDAQ Composite is trading 7586.43, up 83.76 or +1.10%.

Bullish Trade Balance News

Here’s a piece of good news for U.S. investors that will largely be buried because of the jobs report. The U.S. Trade Deficit dropped in May to the lowest level in 19 months as U.S. exports rose to a record level. But the trade gap between the United States and China increased sharply, underscoring the economic tensions between the world’s two biggest economies.

According to the U.S. Commerce Department, the May trade deficit – the difference between what America sells and what it buys in foreign markets – fell 6.6 percent to $43.1 billion. It was the smallest imbalance since October 2016.

Meanwhile, exports climbed 1.9 percent to a record $215.3 billion. Imports were up a smaller 0.4 percent to $258.4 billion.