the Employment Situation
The Bureau of Labor Statistics of the Labor Department released its June Employment Situation report before the opening of equity trading in New York this morning. According to the BLS, the US economy added a net of 80,000 new jobs last month. This marks the third month in a row that the economy has failed to generate enough work even to absorb potential new entrants into the labor force, and making no dent in the several million workers left unemployed as a result of the Great Recession.
The private sector added 84,000 new jobs, its worst showing in a long while. The overall numbers would have been (mildly) worse had state and local government layoffs not shrunk to 4,000 workers.
The result is below the consensus economists’ estimate of +90,000 jobs. I don’t think there’s any particular informed analysis in the 90,000 number. My impression is that economists are basically at sea and are just extrapolating forward the trend of the past couple of months.
No big changes this month. The April figures, originally reported as +115,000 new jobs and revised down last month to +77,000, shrank again in their final revision to +68,000. The May numbers, first estimated at +69,000 new positions, were revised up to +77,000. The net change from revisions, then, is -1,000 jobs.
a negative reaction in early trading
As I’m writing this, the S&P 500 is down about a percent.
As an initial short-term trading reaction this is understandable. The S&P is at toward the upper end of its trading range. The number is below the consensus. And it’s far, far less than the +176,000 jobs the unofficial–and quirky–ADP employment report said yesterday.
I don’t think this is so important. In fact, it will be interesting to see whether the market rallies from the current lows as the day progresses. The best explanation for daily market movements is white noise, but a rally would be in keeping with recent market behavior.
The more fundamental issue that the ES highlights is the possibility of political uncertainty over the coming months. Short-term interest rates are currently at zero. The monetary taps are wide open. There’s little more that Mr. Bernanke and company can do. On the other hand, the second tool of economic policy, fiscal stimulus, remains basically unused–something that Mr. Bernanke points out politely, but consistently, whenever he visits Congress.
The more obvious observation made by pundits is that presidents are never reelected when unemployment is high.
The possibility with much more unpredictable consequences is that a continuing weak employment situation could create strong enough anti-incumbent sentiment to substantially reshuffle the power structure in Congress. It’s hard to know whether that would be good or bad. If investors began to worry about this possibility–and I see no sign Wall Street is now–uncertainty would likely mean stock prices that would be lower than otherwise.