June Payrolls Increase

In June, non-farm payrolls increased by 223,000, missing the Wall Street estimate of 231,000. The monthly ADP National Employment Report predicted the number would come in at 237,000. Investors should remember that ADP numbers are meant to forecast the final payroll number, not the advance number.

Private payrolls increased by 223,000 in June, while government jobs growth was flat. Private services payrolls increased by 222,000, and manufacturing employment barely increased. Construction jobs were flat after increasing by 15,000 the month before. Health and social services employment continues to rise, driven by aging Baby Boomers.

Overall, employment continues to trend upward for professional and business services, healthcare, and retail. The strong dollar has wreaked havoc on commodity prices, making things difficult for mining employment.

The jobs report came on the heels of the Greek IMF default, so it is difficult to determine what effect the report actually had on bond yields. The report was probably not good or bad enough to influence the Fed’s thinking about a September rate hike. Investors interested in making directional bets on interest rates should look at the iShares Barclays 20+ Year Treasury Bond Fund (TLT).

The first-time homebuyer is making a comeback. This is good news for builders like PulteGroup (PHM) and D.R. Horton (DHI) that are big in entry-level housing. The growth in construction jobs may indicate that builders are beginning to add some inventory.

Lennar (LEN) and KB Home (KBH), which operate on November fiscal years, have already reported their second quarter numbers. From the conference calls, traffic is strong and the market continues to improve. Increasing job growth is key to getting the sector to some sort of historical normalcy.

Investors interested in trading in the homebuilding sector as a whole should look at the S&P SPDR Homebuilder ETF (XHB).