US unemployment: Headline better than expected

WSJ interactive graph, US unemployment since 1948  (A comprehensive graph, give it some time to populate)

The U.S. economy added more jobs in July than in any month since February, but the unemployment rate ticked up to 8.3%, signaling that the U.S. recovery, while not headed for a stall, remains too weak to bring down high unemployment. Employers added 163,000 jobs in July, far above the 64,000 they added in June. In total non government non farm job creation was 172,000 better than expected (government sheded 9000). 

But the household survey showed some weakness and a slightly smaller than expected rise in avg hourly earnings points to a sluggish advance in July personal income. In fact, the aggregate weekly payrolls gauge -- which combines the impact of changes in employment, hours and hourly earnings -- rose only 0.2% in July. This follows on the heels of a solid 0.7% rise in June.

Most importantly, some of the upside in July payrolls appeared to be attributable to special factors. For example, a sizeable portion of the 25,000 rise in the manufacturing sector seems to be related to seasonal adjustment issues. Also, a 29,000 rise in the restaurant category is probably reflective of seasonal noise.

So why did the stock market sky rocketed today ? one easy explanation, animal spirit. A market which was lately devoid of any good news, first ECB then Fed disappointed market by building expectation and delivering far below the expectations. So the market as usual wanted just something to cheer itself up. As we say market can be irrational for some time but it correct itself in the long run. 

So given that actually this job number is kind of report which force Fed to sit on the side line, not good enough to pull the economy on itself and not bad enough to force Fed to announce QEIII. In my view the equity and commodity including gold is loser tough credit can be the beneficiary as we know a moderately growing economy can benefit credit. However there is still one more unemployment report before Fed meet. So my expectation is Fed will watch it before taking action and if the data disappoint, which is more likely than not then Fed will announce another round of QEIII in September.