May jobs report: a sharp downshift into low

the Employment Situation report

Last Friday morning the Bureau of Labor Statistics released its Employment Situation report for May 2011.

The numbers showed a sharp deceleration in job growth during the month, from the 200,000 or so pace of job additions seen in recent months to a disappointing +54,000.  That’s well below the pace of around 100,000 additions needed to absorb new entrants into the workforce–to say nothing of absorbing any of the large army of unemployed created by the recent recession.

job growth patterns haven’t changed

The general pattern of job growth in May remained the same as we’ve become used to over the past year:  a larger gain in the private sector (+83,000), offset by job losses in government (-29,000) as states and municipalities cope with budget deficits.  There’s no joy in the monthly revisions, either:  March job gains were revised down by 27,000, April by 12,000.

stock market reaction

Stock market reaction to the news was mildly negative.  But the “mild” part only reflects the fact that a jobs related market selloff began earlier in the week, when the (much more erratic) ADP job survey also signaled a significant cooling off in hiring in the domestic economy.

It’s possible that the May figures are a statistical anomaly and that we’ll be back at 200,000 job gains next month.  I wouldn’t bank on that, however.  There are enough other economic indicators indicating slowdown to make that too optimistic an assumption to safely make.

investment implications

There are two real questions for investors:

–how to interpret the figures.  …are they a consequence of a supply chain slowdown induced by the earthquake/tsunamis in Japan in March? … do they stem from the subsequent weakness in the Japanese economy, which is still one of the largest in the world?  …or is the US just settling back down to a “normal” growth level after a surge in pent-up demand after the recession?

–how to assess their investment significance.  …that is, how is the stock market likely to react if the US unemployment rate remains stuck around the 8%-9% level?  …is there a way to structure an equity portfolio so that the pace of job growth isn’t crucial to investment success?

We’re still in the midst of wedding festivities.  More tomorrow.

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