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The July employment report comes out Friday and, while backward looking and coming late in the new month, it could be the report that really shakes confidence in the recovery.

Attention is already on the employment picture as the White House and Senate Republicans and House Democrats continue to be at loggerheads over what a new fiscal stimulus package could contain. At the time of writing, federal supplement jobless benefits are over and while both sides can agree on another round of $1,200 checks, the sticking point is still the $600 a week for the unemployed.

The caution on July jobs is showing in economists’ estimates. On average, payrolls are expected to have risen by 1.65M last month. That’s down from the 2.25M on Thursday, with downward revisions coming after disappointing weekly jobless claims. 

Claims stayed persistently high at 1.4M, with continuing claims jumping by nearly 1M, indicating impact form the rollback of reopening measures. If payrolls arrive as expected, that would be more than 3M fewer jobs recovered than in June, which would jibe with the trend of higher claims and continuing claims.

Claims, continuing claims and nonfarm payrolls

Among sectors especially sensitive to employment, industrials tend to react heading into and shortly after the report. A weak payrolls number would indicate a major pothole in the road to economic reopening, a bad sign for a stocks of companies that requires so many of their employees to work on site.

The SPDR Industrial Sector ETF (NYSEARCA:XLI) has lagged the broader market through the pandemic. It’s down 11.6% in 6 months that cover the time of the pandemic. It showed some traction in the last 30 days, but was about flat in the past week as earnings came in decidedly mixed. UPS (NYSE:UPS) rocketed up nearly 21% last week after reporting surging domestic volumes. But that was countered by an 11.5% drop in GE (NYSE:GE), which predicted a deteriorating macro environment, and Boeing (NYSE:BA), which was down 9% after what one analyst described as a “planewreck” quarter.

XLI is also weighed down by airlines, where the latest dour jobs news won’t even be reflected by the July report.

Work-from-home stocks, in contrast, look to be in kind of a sweet spot as far as the economic recovery is concerned. The BLS said last week that 31% of the U.S. workforce worked from home or telecommuted because of COVID-19. That’s down slightly from 35% in May. The numbers refer to those who specifically changed to working from home because of the pandemic.

And in the absence of a major treatment a vaccine breakthrough, it’s likely that 1/3 of the workforce could continue to do so, keeping demand elevated customers of companies like Zoom. Companies are already making long-term decisions, Google, for example, is keeping its 200K employees at home until July 2021.



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