the report

The Bureau of Labor Statistics, a part of the Labor Department, released its monthly Employment Situation report last Friday before the opening of equity trading in New York.  The stock market was in an ugly mood before the data release–and the tone became even less pleasant after traders saw the tepid numbers being reported.

According to the BLS, the US economy added 69,000 net new jobs during May.  As has been the case over the past couple of years, that figure consists in gains from private sector employment (+82,000 jobs) and losses from state and municipal governments trying to balance their budgets (-13,000).

revisions didn’t help

The Employment Situation is a survey of a large number of big employers, both private and public.  Data don’t come in all at once, so the Labor Department revises the initial figure in each of the subsequent two months.

In May, the April figure, originally set at +115,000 new positions, was revised down to +77,000.  The March figure, originally set at +120,000 and revised up in April to +154,000, was trimmed back to +143,000.

where did 1Q12 job strength go?

The ES reports for 12/11 through 2/12 showed monthly job gains of +223,000, +275,000 and +259,000.  These figures sent bullish sentiment soaring on Wall Street.  For one thing, it was a marked acceleration from the prior monthly rate of +100,000 or so new jobs.  Also, since the economy needs 100,000+ new positions a month just to absorb new entrants to the workforce, it appeared GDP growth was finally becoming strong enough to help rescue the millions left unemployed by the Great Recession.

At the time, bears said that the apparent acceleration was simply due to the fact that an unusually warm winter was shifting springtime hiring forward by a few months and that it would soon fade away.  I didn’t think so then, but it’s looking more and more like they were right.

reviewing the overall employment numbers

Employment in the US peaked at 138.0 million in January 2008.  By the low point in February 2010, that had fallen to 129.2 million, a loss of 8.8 million jobs (I’m using seasonally adjusted numbers;  the raw data show a virtually identical pattern, but the timing is slightly different).

Figure that the high schools and colleges churned out another 2 million potential workers during that period and you get a better sense of the depth of the employment problem.

The latest ES report says 133.0 million people are employed today, 3.8 million more than at the low.  Except during the summer of 2010, when month-to-month comparisons took a mild dip, the employment rolls have shown steady gains each month for the past two years.  Remember, though, that over those two years another 2 million or so new graduates have started to look for work.

to summarize

If we look at employment, we’re almost half the way back to the all-time peak of 2008.  This has positive implications for GDP growth.

From an unemployment perspective, however, we haven’t made much progress.

stock market implications

Taking a very simple-minded point of view (which is the best I can do–but which is sometimes surprisingly effective), Wall Street ran up during the first quarter on the idea that  economic recovery was accelerating.  It dragged the rest of the world up along with it, in the hope that US vigor would mitigate some of the economic slowdown being experienced by other countries.

Of the past two months, global equity markets have run back down to where they were before, as it become more likely that the hefty early year job gains were transitory.  From a social and political angle, we’re back thinking that there isn’t going to be a magic solution to US unemployment, which remains a severe problem.

Nevertheless, there are about two million more people in the US today working than there were a year ago.  Many of the 133.7 million total jobholders have paid back much of their excessive debt.  Increasing retail sales are saying they’re much more confident now that their jobs are safe.

It’s not only the level of the US stock market that has changed, but also the evolving economic storyline.

At some point, we’ll have finished discounting the fact that the weather shifted job gains from spring into winter and the stock market will stabilize. The baby-and-bathwater panic I read in recent trading says we’re much closer to the end of this process than the beginning.

Just as important, investors will continue to rotate their portfolios into companies that appeal to a broad range of consumers, not just the wealthy.  Since there may not be enough growth to make the profits of all firms go up, the earnings growth story will likely be one where strong firms take market share from the weak.  iPhone and Android take market share from Blackberry; Apple, Samsung, Acer and Asus take share from Dell and HP…