Looks like the positive ADP report mislead everyone. The expectations(including my own) had risen that the official jobs report also might come in with a positive surprise. We got the exact opposite, it was much worse than the original lower expectations. It is hard to find anything positive even in the internals of the data. The jobs report showed that the economy created 18K jobs in June, 57K gain in the private sector and a 39K loss in the public sector. The only thing positive I can say is that at least the private sector is still creating jobs. Yesterday I had speculated that maybe the soft patch is getting over faster than I had originally expected, well this piece of data says – not so fast. This another reminder than when you look at economic data, you should always look at multiple set of data points.
The market reaction to the report is actually positive considering we got such a big negative surprise. I think this sort of a confirms that this rally from the lows has been about good expectations from earnings. All we have done is just given back yesterdays gains. For the next 2 weeks, earnings will take center stage. If earnings come in good, I have a feeling that the market may still be able to continue this rally and we may actually see the market drag the economy out of the soft patch. If we start seeing managements giving bad outlooks then chances of revisiting the summer lows becomes high. When it comes to earnings we should always remember that the US economy now represents only around 50% of S&P 500 revenues, so it is possible to see good earnings even though the US economy is in doldrums.
Lakshman Achutan in the following link does a pretty good job of explaining our current economic situation.