June payrolls rebound
In June 2016, non-farm payrolls rose by 287,000. Non-farm payrolls easily topped Wall Street analysts’ estimate of 180,000. The monthly ADP National Employment Report predicted that the number would come in at 172,000. Note that ADP numbers are meant to forecast the final payroll number, not the advance number. May’s payroll numbers were revised downward to +11,000. There were some technical factors at play between the Verizon strike and the timing of the end of the school year.
Private payrolls rose by 265,000 and government jobs rose by 22,000. Private services payrolls rose by 256,000 and manufacturing employment rose by 9,000. Construction employment was flat after a strong start to the year.
Health and social services employment continued to see the most growth, driven by aging Baby Boomers. Professional and business services employment added 38,000 jobs, while mining continued its streak of negative job growth. The strong dollar wreaked havoc on commodity prices.
Bonds were more or less unchanged on the report, as the Brexit vote seems to have put the Fed on hold for the time being. Investors interested in making directional bets on interest rates might take a look at the iShares Barclays 20+ Year Treasury Bond ETF (TLT).
Why aren’t builders adding inventory?
Currently, there’s strong demand for housing, but builders 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 other factors. The most often cited reasons include high raw land prices, difficulties in 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.