5 Simple Questions to Understand Today's Jobs Report

Let's go over today's nonfarm payroll report and its implications by answering five questions.

What was the unemployment rate in June?
June's unemployment rate came to 7.6% -- unchanged from the previous month but above the consensus forecast of 7.5%.

How many jobs did the economy add?
Another 195,000 jobs were added -- higher than the consensus forecast of 155,000 but in line with the past year's average monthly addition of 182,000.

Hang on a minute -- if the economy added more jobs than forecast, then why is the unemployment rate higher than forecast?
The labor force increased by 177,000 in June, and much of that increase consisted of people getting back into the labor market. (The number of unemployed people who aren't part of the labor force because they aren't job-hunting decreased by 132,000.) Although the unemployment rate was unchanged in June, the employment-population ratio increased to 58.7% from 58.6% in May.

Any other good news?
Job additions for April and May were revised upward by an aggregate 70,000.

What are the implications for the stock market?
Today's jobs report is being well received by investors. The S&P 500 futures peaked a few minutes after the release of the report at 1.35% before giving up some of those gains. In the cash market, U.S. stocks are ahead this morning, with the S&P 500 (SNPINDEX: ^GSPC  ) and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) up 0.2% and 0.12%, respectively, at 10:15 a.m. EDT. The CBOE Volatility Index (VOLATILITYINDICES: ^VIX  ) , Wall Street's "fear gauge," is down 1.85%.

The stock market appears to have adjusted to the idea that the Federal Reserve expects to begin reducing its monthly bond purchases ("quantitative easing") later this year, consistent with (and contingent upon) its improved outlook for the economy. These latest figures appear to bolster that outlook and may therefore reassure investors that the Fed will not withdraw its support prematurely. All told, today's solid report takes us a step closer to an exit from quantitative easing, which will enable investors to focus more closely on stock fundamentals, rather than Fed-watching -- an unmitigated positive.

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