We hope you enjoyed your Fourth of July holiday weekend! Leading up to it there were a variety of fireworks that left more than a few investors oohing and aaahing, while others simply could not wait to hit the vacation trail.
Those fireworks included the ongoing Greek drama and what it may or may not mean for the eurozone and the euro (a vote of "no" in the referendum is looking likely), but also Thursday's June Employment Report, which was in sync with much of the economic data over the last few months, weaker than expected. But even so, politicians were making the rounds quoting June's 5.3% unemployment rate. We always say you need to go beneath the headlines to understand what's really going on and the June Employment Report was no exception.
Where to start?
- 432,000 people left the labor force in June compared with 223,000 new jobs being added during the month?
- The total job creation count for April and May was revised lower by 60,000 jobs?
- June's labor force participation rate fell to 62.6%, down from 62.9% in May and 62.8% in June 2014.
- The number of people not in the labor force swelled in June to the tune of 640,000, bringing the total to 93.6 million. That's about 29% of the U.S. population. Today, for every 100 people working in the private sector, 136 people are receiving some sort of government aid.
- June wage growth remained tepid, another continuing trend that reflects the kind of jobs that are being created.
- What was the single biggest growth category in the report? Part-time jobs. Break out the balloons and noisemakers.
The bottom line is much like it has been over the last few years. The unemployment rate continued to fall in June for all of the wrong reasons. Simple sandbox math shows us that when the number of people outside the labor force continues to grow faster than the number of jobs created, of course the unemployment rate will appear to be falling faster than what is really going on in the economy.
That report has reignited the Fed timing conversation. As much as even we are tired of this Groundhog Day-like conversation surrounding of "Will the Fed raise rates in September, December or not at all in 2015?", given the market's sidecar mentality with the Fed's hands on the wheels, it warrants paying attention. We have several Fed officials giving speeches this week, but it all culminates with Fed Chairwoman Janet Yellen's Friday (July 10) speech in Cleveland. Even after talks given by other Federal Reserve Bank Presidents and Governors Williams, Brainard, George and others, the market will be hanging on to every coy phrase from Yellen to get her latest thoughts on the economy and what that means for the eventual interest-rate hike.
Monday's June ISM Services Report, as well as the June Labor Market Conditions Index and the May JOLTS report that we will get in the beginning of the week, will no doubt shed some light on what she may say. Ahead of that latest data, our view remains that the domestic economy is caught in second gear with the strong dollar continuing to weigh it down and odds are we will start to see the continued China contraction do so as well.
Remember that just a month ago, the Organization for Economic Cooperation and Development (OECD) issued a downbeat assessment on the state of the world economy as it cut its forecast for global growth to 3.1% this year from the prior 3.7%. Much like its central banker cousins, the OECD tends to have a more upbeat view of the world vs. economic reality. Based on the June data collected so far, we suspect that if the OECD were to share an updated forecast the reading would be well below 3% for 2015.
In addition to the economic data released at the start of the week, the other primer ahead of Yellen's Friday speech will be Wednesday's FOMC June meeting minutes. Remember, the Fed downgraded its view on the economy's velocity. We will be reading the statement and recommend you do so as well rather than letting talking heads on cable TV tell you what they think it said. (Yes, we recognize the irony in saying that.)
Other than Greece and the Fed, we're on the cusp of earnings season. With only 26 companies issuing earnings reports this week, down from 34 last week, we see the coming five days as the calm before the earnings storm.
Alcoa (AA) officially kicks things off on Wednesday and comments on global demand for the company's products will reflect the tone of the industrial and manufacturing economy across the globe. Odds are aerospace and auto-related demand will be positive, but as for the rest, let's just say several months of declining industrial production and capacity utilization figures don't paint an upbeat picture. Also on the docket are PepsiCo (PEP), PetSmart (PSMT) and Walgreens Boots Alliance (WBA).
Our inner nerds would never forgive us if we didn't mention the increasingly important zeitgeist event that influences culture, TV, film, and other forms of entertainment. Comic-Con International runs from June 9-12. While Chris "Save the Cheerleader, Save the World" Versace and Lenore "Help Me Obi-Wan" Hawkins won't be in attendance, there will be ample announcements coming from Walt Disney (DIS), Time Warner (TWX), AMC Networks (AMCX) and other entertainment companies. No matter what Hawkins says, Versace is already putting his money on Batman in the upcoming "Batman v Superman: Dawn of Justice."
Below is a more detailed look at the economic data in the week ahead. For a fuller list of corporate earnings to be reported over the next five days, click here to view The Street's weekly earnings calendar. Enjoy the weekend and be sure to catch Lenore Hawkins Monday on America's Morning News and check back for our midweek column, in which we will dish on the first half of the trading week and other key matters and thoughts, as well as how to play it all.
