Don’t Let the Latest NFP Stats Fool You

Last Friday, traders went on a dollar-buying spree after the non-farm payrolls (NFP) report for June revealed robust job growth for the month. Data showed that 195,000 jobs were added, besting the 163,000 forecast and giving us the best reading we’ve seen in four months. To top it off, the figure for May was upwardly revised from 175,000 to 195,000.

If you still remember, there were a few snags in the labor market which I have previously noted.

For instance, the unemployment rate didn’t nudge from 7.6% while analysts had predicted it to improve to 7.5%. This tells us that despite the job gains in June, the Fed is no closer to reaching its target of 6.5%.

What’s more glaring is that underemployment rose to its highest level in four months. Underemployment, which measures the number of people who are already working but feel that they are capable of doing more, printed at 14.3% from 13.8% in May.

I decided to dig a little deeper into the latest jobs report, and interestingly enough, I discovered more cracks in the labor market’s recovery.

What the headline figure doesn’t tell us is that while 360,000 part-time jobs were added in June, 240,000 full-time jobs were lost. In fact, so far only 130,000 full-time jobs have been added for the year.

This means that majority of the job gains (557,000 to be exact) are part-time, suggesting that the jobs being created aren’t exactly of the best quality. From this alone, we can see that there is still much to be desired from the job market.

In addition, the Job Openings and Labor Turnover Survey (JOLTS), which tracks hires and separations independently, suggests that 2013 NFP data has been overstated by about 40% so far. Unfortunately, the JOLTS report doesn’t usually get as much attention as the NFP because it’s usually released a month later.

From January to May, JOLTS recorded a total of 726,000 jobs added, but in the same period, NFP reported gains of 1,016,000. What this tells us is that NFP figures will have to undershoot the JOLTS’ stats by 290,000 in the coming months just to bridge the gap. This huge discrepancy presents us with the possibility of downward revisions in NFP data in the months to come.

I guess what we should take away from all of this is that the U.S. job market still has a long way to go. While it’s showing signs of picking up, its recovery hasn’t been as strong nor as well-balanced as recent headline NFP figures suggest.

It may take some time until we see solid, across the board improvements in the quality of jobs being added in the labor market. But judging by how they have been treating the dollar as of late, the markets don’t seem to mind. They seem content with any form of improvement.

For now, it looks like the markets will take what they can get, but one can’t help but wonder how long things will stay this way.