the report
Last Friday, the Bureau of Labor Statistics released its Employment Situation Summary for May.
Wall Street reacted very badly to the release, falling by almost 3% on the news. What was so bad?
background
The civilian labor force is about 154.4 million, and normally grows by about 100,000 a month. The latter is mostly a fact about population growth, but there’s a cyclical element as well. During recessions people looking unsuccessfully for work may become discouraged and stop trying, thereby dropping out of the labor force. When times get better, these people tend to rejoin the work force.
Of the labor force, about 139.4 million are currently employed.
September 2007 was the most recent peak in employment, at 146.2 million employed. The work force at that time was 153.4 million. Between then and now, the labor force has increased by about 1.0 million and there are about 6.8 million fewer people employed.
The recent low point for people employed was October 2009, when only 138.2 million people were working. In the intervening seven months, the economy has regained around 1.2 million jobs, although about half are temporary, working for the federal government on the latest census.
In recent months, employment gains had been accelerating. Ex the census work, the economy gained 158,00 jobs in March and 218,000 in April. Economists had been issuing reports predicting increases of 150,000 and up for May. Whisper numbers were higher.
the May figures
The economy did gain 431,000 jobs in May and the unemployment rate fell. But 411,000 people were hired to work on the census. The US added only 41,000 private-sector jobs.
As government spokespeople tried to point out (lamely, in my opinion), this is an increase. It’s only one month of data. And it’s better than nothing. The other side of the coin is that the number falls below the average rate of growth of the work force, and it breaks the string of month-to-month gains in employment. So if you were hoping that the past three years were all a collective bad dream that would quickly go away as we were waking up–if no one else, apparently Wall Street traders were–this report is a major disappointment.
where the shortfalls lie
We can’t (or at least I can’t) see the detailed spreadsheets economists used in formulating their idea that May would be another month of large job gains–assuming they actually had them and didn’t just extrapolate from the trend of January-April. But we can look at how the actual numbers for May differ from those from earlier in the year. April was an unusually good month, with a leap of 73,000 month-to-month in the catchall service category professional and business services, so the comparison below is vs. March.
We’re looking for a negative change in hiring of about private-sector 120,000 jobs. The biggest contributors are:
construction -62,000 jobs, to a loss of 35,000
retail -29,300 jobs, to a loss of 6,600
health care and social services -26,100 jobs, to a gain of 13,100
leisure and hospitality -21,000 jobs, to a gain of 2,000.
Together, they total negative change in hiring of almost 140,000 jobs.
On the plus side, business and professional services was up by 21,000 jobs and manufacturing gained 10,000.
Generally, though, the positive changes vs. March seem to come from industrial areas, the negative ones from areas serving the consumer.
where to from here?
The Fed has consistently been saying that the US faces a long, slow slog on its way back to economic health–one that will require continuing assistance from easy monetary conditions. Unlike the March and April employment data, the May results are more in line with this point of view. They are the first hints that Wall Street’s apparent optimism over near-term recovery prospects may be too optimistic. But we need more information to make an informed judgment.
As far as the stock market is concerned, we may see more emotional reaction to the May report from Wall Street in the next few days. Monday will be particularly interesting, since investors will have had the weekend to do more thinking about what’s going on.
I’m not sure there’s anything but a very near-term worry about the overall level of stock prices. Equities appear cheap to me, both in an absolute sense and relative to fixed income. But I think this is the main fear the May employment report raises. The May data seem to reinforce what has already been a successful stock and industry selection strategy: prefer exposure to IT and other manufacturing rather than to the consumer, and look for companies with exposure to high growth economies in the Pacific and in other emerging market areas rather than to the US.
the numbers