Nonfarm payroll numbers were released this morning and there was a big surprise to the upside. Payrolls rose by 528,000 for the month of July and the unemployment rate was 3.5%, easily surpassing estimates of 258,000 and 3.6% respectively. Wages grew month-over-month (adjusted for inflation it was actually negative). Gains in job growth were spread across hospitality, services, and healthcare. This echoes some of our thoughts from our prior posts, that is, consumer demand for services remained strong. What was encouraging to see was the growth in construction employment – there was an increase of 32,000 jobs in July, primarily in the specialty contractors space.
This news pushed yields higher across the board as market participants anticipate a higher likelihood of a 75 bp rate hike in September with these much better-than-expected numbers. What remains stubbornly low in the NFP is the labor force participation rate (62.1%), which is surprisingly lower than pre covid (February 2020). Many people have dropped off the labor force and no longer look for work. We can’t make sense of these numbers. We do hear from our business merchants that there is difficulty in hiring in the labor force. There are estimates that there are 2 jobs for every 1 worker. Where are these workers?
Specialty Capital has a counterintuitive view and actually believes that these NFP numbers show how much of impact inflation is having. It is forcing more people to get jobs. Our view remains that there will be a slowdown in consumer spending on goods and we believe that hiring numbers will continue to increase in the coming months.
We also wanted to highlight some other positive news this week. Nymex futures are pointing to lower fuel costs in the coming months as the US released higher inventory crude buildup. We are seeing pre-Ukraine war future prices, which bodes well for the trucking merchants. We understand that many small business financing companies have been hurt by Trucking defaults and have either declined funding these business or have gotten tighter in pricing. We remain open to the funding trucking business, especially with the macro view we are taking.
Happy Funding and Have a Great Weekend.