I thought I was through with writing about the monthly Employment Situation Report (ESR, issued by the Bureau of Labor Statistics, part of the Labor Department) when the US economy returned to something approaching normal after the 2008-09 financial crisis. But here we go again:
The BLS issues the monthly ESR on the first Friday of the month at 8:30 am, Eastern time. Market expectations for this headline job gains number were high, with the consensus economic forecast coming in at just shy of a million new jobs filled during April. The actual figure was +266,000.
This came as as a severe negative shock, at least to the AI competitors who dominate ultra-short-term securities trading in the US. Treasury bonds began to rise; reopening stocks began to crumble; last year’s stay-at-home winners bolted out of their doghouse and started to rise.
context for interpreting the payroll number
–prior months had been:
April 2000 -20,500,000
May 2020 +2,500,000
June 2020 +4,800,000
July 2020 +1,800,000
August 2020 +1,200,000
September 2020 +661,000
October 2020 +638,000
November 2020 +245,000
December 2020 -140,000
January 2021 +49,000
February 2021 +379,000
March 2021 +916,000.
In other words, if our eyes skip over the December figure, or if we discard it as a yearend anomaly, the country appears to have been making continuous, solid progress at getting people back to work after the pandemic.
The big positive turn in market sentiment began last October and accelerated as Biden took office and Washington began to fight the pandemic in earnest. Job increases followed suit. We know companies are already discussing the timing and techniques for returning employees to offices. So expectations for the April ESR were high.
In addition, as usual ADP released its monthly jobs report on Wednesday. In recent years ADP has reshaped that report into, in effect, a prediction of what the BLS would say two days later. Its figure for April was +742,000 jobs.
what went wrong?
Maybe this is a major setback to the market’s recovery thesis. On the other hand, maybe it’s nothing.
It could easily be that April was another month like December, a weak link in an otherwise strengthening chain.
It also may be that the seasonal adjustment factors that are routinely applied to the raw data have been skewed by incorporating into them the effects of the titanic employment drop in April of last year (-20.5 million, or a loss of over 13% of the workforce). Deep in the minutiae of the data, for example, food and beverage stores are recorded as firing a total of 49,500 employees. This seems odd to me, in an environment where employers of all stripes seem desperate to increase their workforces.
Two minor additional points: my experience has been that economists’ estimates of the ESR numbers are, generally speaking, not much more than extrapolations of recent results. I don’t find it that surprising that the consensus thought that the ESR number for April would be close to a million. I just don’t think the consensus is a guess that’s sophisticated enough to base buy or sell decisions on. Also, the ESR figures are only accurate to +/- 100,000 and are often subject to substantial revision. That’s again not enough, to my mind, to bet the farm on.
In my view, we really won’t know much for sure until, at the earliest, the June ESR.
market reaction
Stocks recovered as trading progressed on Friday from their early morning swoon; the 10-year Treasury not only gave up its early gains but ended the day slightly lower (the yield one bp higher) than the day before.
What’s more interesting, I think, is that the stock market seemed to take the report as an occasion to shift its emphasis away from the relatively simple idea of selling last year’s winners and buying last year’s losers. If I had to say from one day’s observation, the potential new direction is likely to be much more individual company- and earnings-oriented, rather than de by relatively abstract factors or growth/value themes. Yes, any new investment emphasis will likely continue to favor reopening beneficiaries over secular growth stocks, but the latter group won’t be dismissed out of hand. It’s also possible that inflation fears, which I personally think are very overblown, will be put on the back burner, although I’m less confident about this.