the May Employment Situation

May

As usual, at 8:30 edt this morning, the Bureau of Labor Statistics of the Labor Department released its Employment Situation report for May.  The results were almost exactly what the average for monthly job creation in the US over the past year has been:  +175,000 new positions, +178,000 in the private sector, -3,000 in government.

revisions

The report also contains the usual revisions of the figures for the prior two months:

— March job gains were initially put at a weak +88,000.  That was revised up to +138,000 in the April ES and again to +142,000 in this morning’s edition.

–April job gains were reported at +165,000 last month and revised down to +149,000 today.

The net result of the two revisions is a loss of 12,000 jobs.

glass half-full?    glass half empty?

for optimists

The US economy has about 1.5 million people each year finishing school and looking for their first jobs.  That’s 125,000 a month, on average.  Creating enough new jobs to absorb these new entrants is an important economic goal.  The US is doing this consistently now.

for pessimists

The unemployment rate is currently 7.6% of the workforce.  This means there are something like 3.5 million – 4 million people who would like to be working but can’t find jobs.  Whether all of these people have the skills to actually qualify for the available openings or not is a subject for debate (my personal view is that at least half don’t–which is a whole other social/political issue).

But just manipulating the numbers, the labor market is absorbing new workers plus putting the chronically unemployed back to work at the rate of 50,000 a month.  At this pace, it will take over five years for all the latter to start drawing a paycheck.

for Wall Street

For stocks, it seems to me that the May ES is good news, because it says the job market isn’t dramatically better or worse than it has been for a long while.

On Wednesday, stocks went down and bonds went up after the monthly survey commissioned by payroll company ADP reported that the economy had added a disappointing +135,000 jobs in May.  Wall Street has been scanning the horizon for signs that the sequester is damaging economic growth and took the EDP report (which is notoriously out of step with the government ES) as a precursor of similarly bad news from the May ES  (don’t ask me why).  That turns out not to be the case.

On the other hand, job creation isn’t accelerating–meaning that the Fed isn’t about to put plans to raise interest rates from today’s emergency-low levels into higher gear.  Arguably, that’s the best news bondholders could reasonably expect to hear.

In short, we’re back to where we thought we were pre-ADP.  My guess is stocks go sideways today.  It will be instructive to see if stocks either break up or down.  The former would really surprise me.  To my mind, though, the pattern of relative industry performance will be the most important thing to watch.