the May 2015 Employment Situation

the May Employment situation

At 8:30 am, est, this morning the Bureau of Labor Statistics of the Labor Department made its usual release of the monthly Employment Situation.  The report showed the economy added +280,000 new jobs during May, substantially higher than economists’ estimates of +225,000.  Of the total, 262,000 positions were in the private sector, 18,000 in government.

Gains in government employment are almost exactly offsetting declines in mining/oilfield.


Revisions to prior months’ estimates added another 32,000 to the tally.

Average hourly earnings were up by 2.3%, year on year, showing no acceleration from their recent tepid growth, despite the low current unemployment rate (5.5%) and the sharp employment gains.

why the report in important for investors

What I find interesting is the financial market reaction to the positive report, namely:

–S&P 500 future have declined modestly

–the US$ is up by about a percent against the euro and the yen

–gold is down a percent in dollars (flat in euros or yen)

–in pre-market trading, financials (higher interest rate beneficiaries) are doing relatively well, utilities (whose attractiveness as income vehicles is lessened by higher rates) relatively poorly.

the message

In other words, the message the market is taking from the ES is that the Fed is going to begin to raise short-term interest rates relatively soon (September?).

I think this ES most likely marks an important turning point in market psychology.  Since early 2009, investors have taken heart–and portfolio positioning cues–from the idea that interest rates were extremely unlikely to rise and might possible decline. Investors who adopted an appropriate portfolio structure have been rewarded by seeing rates fall to what were initially undreamed of low levels.

That period is over.

Now rates are highly unlikely to fall and may rise.  Although rates will doubtless rise very slowly and may reach “normal” at much lower levels than in previous economic cycles, this is an important distinction.  It implies that the market will (finally) reorient itself into anticipation of rising rates.  It doesn’t need to have a precise idea of where rates are headed.  The key thing is that the easing trend of the past seven years or so is behind us.

More on Monday.



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