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July's Jobs Report Was Strong

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July's Jobs Report Was Strong PART 1 OF 6

July Payrolls Stayed Strong

July payrolls

In July 2016, non-farm payrolls rose by 255,000. Non-farm payrolls easily topped Wall Street analysts’ estimate of 185,000. The monthly ADP National Employment Report predicted that the number would come in at 179,000. Note that ADP numbers are meant to forecast the final payroll number, not the advance number. May and June were revised upward, as well. It looks like June’s strong number was more than just a rebound from May’s low.

July Payrolls Stayed Strong

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Private payrolls rose by 217,000, and government jobs rose by 38,000. Private services payrolls rose by 201,000, and manufacturing employment rose by 9,000. Construction employment rebounded.

Health and social services employment continued to see the most growth, driven by aging Baby Boomers. Professional and business services employment added 70,000 jobs, while mining continued its streak of negative job growth. The strong dollar wreaked havoc on commodity prices.

Bonds sold off on the report. Investors interested in making directional bets on interest rates might take a look at the iShares 20+ Year Treasury Bond ETF (TLT).

Why aren’t builders adding inventory?

Currently, there’s strong demand for housing, but homebuilders aren’t adding inventory the way they typically do coming out of a recession. This could be due to the fact that they’re being overly cautious, or it could be due to other factors. The most commonly cited reasons include high raw land prices, difficulty finding skilled labor, and regulations that make starter homes unaffordable for young families.

Recent reports suggest that first-time homebuyers are making a comeback. This trend is good news for builders such as PulteGroup (PHM) and D.R. Horton (DHI). They have a big focus on entry-level housing.

Luxury rentals remain a big growth factor for Toll Brothers (TOL), although there seems to be a lot of foreign money piling into that sector since it’s a dollar play as well as a real estate play. We’ll hear from Lennar (LEN) and KB Home (KBH) later this month.

Investors interested in trading in the homebuilding sector as a whole may want to look into the SPDR S&P Homebuilders ETF (XHB) or the iShares U.S. Home Construction ETF (ITB).

In the next part of this series, we’ll discuss July’s unemployment rate.

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