Brian Cheung, Brian Sozzi and Myles Udland discuss July jobs report, in which the U.S. economy added back more jobs than expected and jobless rate fell to the lowest level since March 2020, improving more than expected.

Video Transcript

MYLES UDLAND: For Brian Sozzi, you've been looking through the report. What stands out to you in the initial run-through here?

BRIAN SOZZI: Very important what Jared just mentioned, that tick down on the futures. And I will put this to you, Brian. Do you think that is because we had 119,000 in terms of upward revisions to prior month's data? So you have a hot headline, really at the upper end of Wall Street estimates. Here you have what appears to be a stronger than expected labor market in May and June. Why doesn't that put the taper on the table at Jackson Hole?

BRIAN CHEUNG: Well, because it takes more than one month of data.

BRIAN SOZZI: We have three.

BRIAN CHEUNG: We have-- well, we have three, yes, but at the same time, we heard the likes of whatever--

MYLES UDLAND: But we don't have three though, because we were talking last month about how it wasn't enough yet. So we have one, right?

BRIAN CHEUNG: Well, it was--

MYLES UDLAND: Even the revi-- I know there's the revision. But as of the June report, which now looks better, we didn't have any. So this still only counts as one.

BRIAN CHEUNG: I mean, it's still definitely, it's a strong jobs report, right? But again, even the likes of the more hawkish members, like Christopher Waller, who was saying earlier this week that it's not just going to be the July jobs report. If he gets the August jobs report, maybe two of those 800,000 to one million job gains would be enough for substantial further progress. He's one of the more hawkish members, right?

On maybe what would be a committee of mostly doves, but when you take a look at the likes of Lael Brainard and the more dovish members of the dovish Fed, they've been saying it's going to take more than two months. So I think that it's just one step. Yes, you're maybe seeing futures blink, because it could be a validation that the markets have properly priced in, have already been properly pricing in the timing of that taper. But again, I think it's too early to say, well, hey, this is a blowout number that we got for July. That means that the Fed's going to taper in the next meeting. Not necessarily the case.

BRIAN SOZZI: And Myles, I'll put this one to you here. Look, we've talked to a lot of strategists over the past two weeks as we've gotten an uptick in COVID cases because of the Delta variant, but this report, and they have largely said, ignore it. The market's going to go up anyway. Does this report suggest that investors should ignore it, because you have now a strong May, strong June, and a strong July jobs report?

MYLES UDLAND: Well, I mean, it doesn't suggest that they should. It suggests that they have and that they probably continue to will, or they will continue to ignore the Delta variant, right? I mean, I think the question around Delta variant is not an epidemiological question. It's a question about does this change the trajectory that the economy is on.

And as of the most recent incoming economic data, that is very much unclear if it changes. I mean, OK, you could theoretically argue, oh, it would have been 1.4 million, but like if you look at the amount of jobs that were added last month, relative to what folks had been expecting, in the background of what had been happening, it would suggest to me, Brian Cheung, that there is not a material change to the trajectory as a result of the spread of the Delta.

BRIAN CHEUNG: And I also think we have to acknowledge that, if you were to look at a chart of the COVID cases, it really wasn't until the end of July that we started to see that spike anyway. So the real impact of the Delta variant--

BRIAN SOZZI: Wasn't in the reference league, there you go.

BRIAN CHEUNG: Wasn't it, exactly, so we're not going to see that until really that August report. And I do want to say, I mean, there's certainly the downside risk of the Delta variant showing up in that next really critical jobs report that we'll get in about a month. But I think it's also important to acknowledge the return of the thousands of people working in education in that month of August, as well, right?

That's a big seasonal factor that comes in for August, as a lot of schools around the country start to reopen again. If a lot of schools are maybe locking down in certain corners of the country, that could be a major risk to what that headline number might be in August. Although it could, on the upside also, present a lot more job gains if they don't lock down. So I think it's a really, really critical jobs report that we'll get in that next month.

We started to see some of those jobs coming back in July, but again, it's August where we're really going to start to see that headwind from the education sector.

BRIAN SOZZI: And let's call this number out too. In July 13.2% of employed persons teleworked because of the coronavirus pandemic. That is down from 14.4% in the prior month. I mean, people are going back to the office.

MYLES UDLAND: We are.

BRIAN SOZZI: We're back in the office.

BRIAN CHEUNG: Look at us. Hey, look at us, huh?

BRIAN SOZZI: We're back here. So there's been so much focus I think--

MYLES UDLAND: We're in the jobs report. We are in the matrix.

BRIAN SOZZI: We're in the jobs report. A lot of focus on these very giant companies pushing back their return to office plans. But I think people forget, there are smaller companies that are now going back in the office and are not following the lead of bigger companies. And that has economic implications.

MYLES UDLAND: Yeah, certainly does. I mean, look, the import of a city like a New York, or a Los Angeles, or San Francisco, Seattle, to the overall economy, you know, I think gets appropriately stated. But certainly the dynamics that we're seeing here, locally, with respect to return to office, as you note there, Sozzi, not really enduring nationwide. Let's talk a little bit about some of the industry data, which we haven't really gotten into yet.

Job gains in July, for the service providing sector, 659,000 of that 943,000. And, of course, always going to be a lot of focus on leisure and hospitality, job gains there 380,000, against a 394,000 increase in June. And I think, Brian Cheung, this gets to what Powell talked about last week a little bit, the speed break that maybe is on the recovery, where, I mean, you have as much demand for labor in that part of the economy as you've probably ever had.

And yet you're still getting about that, you know, let's call it 400,000, give or take, in terms of hiring, because how much faster can companies hire? It feels like there is a natural limit against which a lot of those businesses have hit.

BRIAN CHEUNG: Yeah, absolutely, that's definitely the case. And I think that's a big reason why you're hearing a lot of kind of semantic change and not wanting to describe this as a recovery, but describing this as a restart. And you can only restart at so fast of a pace. And I think that we still have to acknowledge that there are all those factors that have been cited as reasons for people not wanting to come back to work are still in play for July. They'll still be in play for August. Maybe those will start to wane off in September.

And those are the three factors of fears of getting the virus, which is now elevated because of the Delta variant, because of childcare concerns, which, again, still an issue until those schools start to reopen in August and September, and then also, lastly, just the unemployment insurance benefits, which we know in many states will start to expire in September. So those are all things that we should continue to see as a bogging down on people going back to work.

But I just want to point out one quick figure. When we look at the unemployed persons by duration of unemployment, one green shoot that we did see was a sharp decline in the number of long-term unemployed people that were considered to be out of the labor force for 27 weeks and over. It was about four million in June. It ticked down to 3.4 million, actually, ticked down is not even the proper verb to describe that.

That's a pretty sharp drop off, which means that those people that were maybe at risk of being stranded on the sidelines are starting to come back. That's a trend that we have not seen in previous months. So that is definitely a green shoot.

MYLES UDLAND: Yeah, also interesting, 240,000 job gains in the government sector, in the public sector.

BRIAN SOZZI: Education, big government.

BRIAN CHEUNG: Yeah.

MYLES UDLAND: Education. There you go, well, I mean, we discussed at length in the beginning of the pandemic, oh, tax revenues are going to get destroyed. We're going to see huge--

BRIAN SOZZI: Muni bonds are going to go. I wrote that story.

MYLES UDLAND: Well, we did the muni bonds again. Like we always have a muni bond cycle every time we come up.

BRIAN SOZZI: People are tuning out right now. They heard muni bonds.

MYLES UDLAND: I'm just saying, oh, crisis happens, muni bonds. You can get on 60 Minutes with that. And I mean, look, that has really come back and exceeded expectations. And we see, you know, a lot of municipalities in very strong position now.

And as we get towards the school year, we are, fortunately, seeing, I think, a return or a move towards at least 2019 levels, if not better.

BRIAN SOZZI: And two quirky things before we head off here for a brief break. Retail trade in July, jobs down 6,000. I have to dig more into that. Unclear why that is happening, especially as retail wages are on the rise, and by all indications, just looking at some of these retail earnings reports we've got in the past two weeks, very strong. Strange to see that, perhaps not as strange to see construction jobs unchanged.

I think that story has continued out over the past two years. People are trying to buy new homes. They're trying to build homes. They just can't build homes fast enough to service demand, in large part because they can't find workers.

MYLES UDLAND: Yeah, can't find wood.

BRIAN SOZZI: Wood.

MYLES UDLAND: Well, they can find, now you can--

BRIAN SOZZI: But you found a new dishwasher.

MYLES UDLAND: Yeah. Won't go into that.

BRIAN CHEUNG: Long-awaited. Long-awaited.

MYLES UDLAND: No, I mean, it exists, but it's still, OK. U-6, 9.2%. And I know, Brian Cheung, that U-6 became, it became the number we need not say, after the financial crisis, because it fueled-- but then Gary Cohn brought it back into vogue, said the Trump administration will be focusing on U-6. And I think Fed officials have gotten on board with the idea that it does capture something more holistic about the labor market.

But what was it, 7.8 or 7.6, I think was the low on U-6 that we got in the last expansion, and we are now within two percentage points of that.

BRIAN CHEUNG: Yeah, well, I think that when we talk about the alternative measures of labor utilization, I actually do acknowledge, I mean, because I love talking about U-6 and U-5 and all the other measures.

MYLES UDLAND: I mean, who doesn't.

BRIAN SOZZI: I mean, I love it.

BRIAN CHEUNG: But I do think, I do think right now it's a fairly difficult thing to parse out, because people that are on the sidelines wanting to get back into the economy, they are very much waffling, day to day, on how attached they are to the labor force, right? Because the headline U-3 unemployment rate hinges on whether or not you are actively looking for work. Now it's a very weird dynamic, just given the speed of the recovery, but also just the health implications of this pandemic, that sometimes people wake up, even if they have the vaccine, saying, you know what, today is the day that I'm ready to go back to work. I'm not fearful of the virus.

But then you start to see the Delta variant. So people that were looking at the Delta cases in June, may have been more attached to the workforce than now, right, in July and August, when maybe they're actually falling back out again, because they're saying, look, I'm looking at these case numbers. I'm getting worried again. I'm not actively searching.

So I do think the differences between U-3 and U-6 is just a bit noisy, so maybe not worth reading too much into those figures right now.

MYLES UDLAND: U-1 is down to 2.9%. U-1 got down to 1.2% in February. It actually went down to 1.1% in April of 2020.

BRIAN CHEUNG: I was going to make a U-2 joke, but I actually don't know any U2 songs.

BRIAN SOZZI: Fascinating.

BRIAN CHEUNG: I was born in '93, so I have no idea.

BRIAN SOZZI: I love it.

MYLES UDLAND: That's right. Well, I wish I had a U2 tie-in there, but I'll let that--