the Employment Situation, May 2014

Last Friday, as usual, the Bureau of Labor Statistics of the Labor Department published its monthly Employment Situation for May 2014.

The numbers were good.  The economy added 217,000 net new jobs during May, made up of +215,000 in the private sector and +1,000 in government.  There was no revision to the March 2014 figure of +203,000 new positions.  April’s gigantic +288,000 new job gain was revised down by -6,000, but that’s not significant.

The strong figures reported by the BLS each month since February appear to have convinced Wall Street that the weakness seen in December and January was due to bad weather, not a reversal of the economic progress of the past year.

As a result, investors have shifted their attention away from employment gains to second-level issues, namely:

–annual wage increases are running at about +2%, a relatively low figure that indicates there still is considerable slack in the economy.  This is a good news/bad news thing.  Inflation in advanced economies is all about wages; +2% means employers feel labor is still plentiful.  Therefore, rising interest rates aren’t just around the corner.

On the other hand, given the half-decade-plus that the Fed has been applying enormous monetary stimulus in the US, you’d think there’d be a stronger pulse.

–the situation for the long-term unemployed, those doing part-time work because they can’t find full-time jobs, discouraged workers who have dropped out of the workforce, and Millennials looking for jobs hasn’t improved over the past year or so.

my take

The recent series of strong job gains show that the US economy is out of intensive care and is continuing to heal itself someplace else in the hospital.  Without help from fiscal policy–which is highly unlikely to come–this is as good as it gets.  As a result, I don’t think the employment figures will continue to play as important a role in stock market movements as it has from the beginning of the recovery until now.

From this point, the key will be wage gains.  A pickup from the current rate will be a strong indicator for the Fed to withdraw more of the emergency economic stimulus it has been applying.  In other words, wage gains will be a signal that interest rates are about to rise.


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