The Light And Dark Sides Of The Employment Report

Feeling a little down about the recovery after that employment report this morning? I can’t blame  you, but maybe it’s not quite as bad as you think. At least the opinions of a group of economists surveyed by the WSJ indicate that we shouldn’t overreact.

The May employment report underscores the fragility of the economic recovery… If anything, today’s data show that employers took a breath last month — perhaps they were spooked by all the tape bombs that overloaded the news wires or maybe this number was a payback for the outsize gains in March and April. Recoveries do not move in a straight line and NO, this is not a sign we are about to double-dip. Double-dips happen when there is a policy mistake, which we do not expect. –Ethan Harris, Bank of America Merrill Lynch

Many observers believe that the U.S. economy will soon weaken substantially in the wake of the turmoil in Europe. Some may even go so far as to chalk up today’s data as the firstfruits of that prospect. I doubt that I can talk anyone off of that position so I will not try, especially after today’s data. I firmly believe that the economy is expanding nicely and today represents no more than a bump in the road, but the skeptics will be heartened. –Stephen Stanley, Pierpoint Securities

The May employment report was disappointing following the strong gains in March and April. The large top-line number was almost entirely due to hiring for the Census; many of those jobs will disappear over the next couple of months. The labor market gained momentum in March and April. The strength of the March numbers was due to some extent to a rebound in activity following the harsh winter. April’s gains seemed to usher in sturdier labor market conditions but may have overstated the market’s strength. May’s numbers are a reminder of the depth and severity of the labor-market decline of the past two years and of lingering obstacles to growth. –Sophia Koropeckyj, Moody’s

We were skeptical of the 218,000 reported for private payrolls in April and we are equally skeptical of this report; the truth is probably in between. –Ian Shepherdson, High Frequency Economics

We were anticipating a downshift in private employment growth during May because of our suspicion that the April tally was boosted by the combined impact of two special factors. First, weather conditions were incredibly mild during the April survey period. Second, the April survey period was relatively late in the month. Based on historical precedent, we believe that these special factors may have added 100,000 or more to the April payroll gain at the expense of May. The sharp fall-off in employment growth in May in the construction and leisure sectors — the two sectors that are most influenced by weather conditions — provides some confirmation for our thesis. –David Greenlaw, Morgan Stanley

Employment readings are rarely smooth. The softer performance in U.S. private sector payrolls for May than in earlier months raises concern that the recovery is faltering. In our view it is typical swings. Earlier gains for April were as surprise at the time and now appear over-stated. The modest April increase of 41,000 should not be read as a faltering economy. –Stephen Gallagher, Societe Generale

There is no sugar coating this report as it was disappointing. The private sector has not become a jobs producing machine. That said, I have to repeat a cautionary comment I often make about most economic data: Don’t get too excited about month-to-month changes. Instead, watch the trend. So far this year, we have averaged about 100,000 new jobs each month with that rising to nearly 140,000 over the past three months. That is what many of us had expected when we talked about modest to moderate job growth this year. –Naroff Economic Advisors

A disappointing private payroll number to be sure and the unemployment rate fell for the wrong reasons (lower participation rather than higher employment) but nonetheless the report remains consistent with the theme of an economic recovery that is gradually broadening out and gaining momentum. The labor input is rising much faster than total employment as the workweek continues to expand — private-sector hours worked have risen at a rapid 4.9% pace over the last three months. Combined with higher hourly earnings, private wage income looks to have risen by about 0.6% in May — a welcome addition to personal income. In addition, there will be a temporary boost to wage incomes from the Census workers. The continued gains in factory employment and temporary help are both constructive and the 12.1% annualized increase in manufacturing hours worked over the last three months underscores our V-shaped manufacturing recovery thesis. –RDQ Economics

Nearly every sector within the private payrolls report experienced month-over-month worsening after March and April strength, though the most dramatic reversal came from the construction industry, which erased almost two months of job gains with a -35,000 result in May. Perhaps it’s still too early to call a bottom in construction spending. Manufacturing sector payrolls, typically considered a leading indicator of future hiring trends, grew by a still-healthy +29,000 jobs, though that’s a far cry from last month’s +40,000 result. –Guy LeBas, Janney Montgomery Scott

The sharp drop in private sector hiring in May partly reflects a substitution effect from the large degree of Census hiring. The sector composition provides some supporting evidence of this, with both retail and leisure and hospitality (areas which may naturally compete for the same short-term hires) noticeably weaker relative to April, the former down by 7,00, the latter up just 2,000. Construction hiring also turned lower, with the 35,000 decline broadly offsetting gains seen in April and March, although the trend has clearly improved from the consistently sharp declines seen earlier in the year. The trend in manufacturing hiring remains positive, with 29,000 added in May, in line with the average of the previous three months… All in all, despite the clearly softer-than-expected rise in private payrolls, the cyclical recovery in the labor market remains in place – growth in hours and earnings is gaining momentum, the unemployment rate has stabilized, and the jump in Census hiring was likely a drag on the private sector. As Census hiring fades and reverses over the summer, we expect an upward trend in private payrolls to resume. –Peter Newland, Barclays Capital

The increase in nonfarm payrolls has peaked in May and will slow down markedly in the second half of the year. In fact, employment probably even declined again in June, after rising at the fastest pace in 10 years. The backdrop is that the Census Bureau is likely to lay off about 250k temporary workers in June. In addition, we think that the unemployment rate will rise again towards 10% in summer, due to a combination of weaker payrolls and an increase in the labor force. –Harm Bandholz, Unicredit

The construction industry is not likely to join the job growth parade on a sustainable basis anytime soon even though we expect moderate growth in home building. The reason is simple — the industry is still characterized by excess capacity. Other details of the report were a bit of a mixed bag. Retail jobs declined despite a sizeable increase before seasonal adjustment. Temporary job hiring continues to post solid gains and the transport industries look to be hiring more workers to move the goods being produced by manufacturers. Hiring in the health care industries was just 8,000, the lowest monthly gain since February 2004. While inclined to dismiss this as a temporary interruption in a trend of strong growth, it might also reflect the uncertainties raised by health care reform. –David Resler, Nomura Global Economics

The average private job gain during the past three months is far short of what the economy needs. The index of aggregate hours worked, a good measure of economic growth, rose 0.33 percent, but at a slower rate than in March and April indicating that economic growth is lackluster during the current quarter. Normally, the economy must create at least 100,000 jobs per month to take care of new entrants to the labor force, immigration and other demographic factors. In addition, the economy has lost about 8 million jobs during the recent recession. Assuming the monthly job creation averages 200,000 in coming months, it will take more than three years to get back to where we were in terms of the employment level. –Sung Won Sohn, Smith School of Business and Economics

This report is a clear warning that the recovery is very weak. The weakness is in spite of the temporary stimulus provided by the hiring of 550,000 Census workers. With house prices falling again, severe state and local budget cutbacks looming, and troubles in Europe dampening exports, the future is not bright. –Dean Baker, Center for Economic and Policy Research

Not convinced? Well then consider this from Paul Kedrosky:


Have I sugar coated it enough for you? Well then let me bring you down to earth with this from the NFIB:

“Since January 2008, the average employment per firm has been negative every month, including May 2010, which yielded a seasonally adjusted loss of negative 0.5 workers per firm.  Most firms did not change employment in May, but for those that did, 8 percent increased average employment by 2.4 employees and 20 percent reduced their workforces by an average of 4 employees. Small business job creation has not crossed the 0 line in over 2 years. Government (including healthcare and education) and manufacturing (a large firm activity) are providing what few jobs are created.

“The number of owners with unfilled (hard to fill) openings fell two points to 9 percent of all firms, historically a weak showing.

“Over the next three months, 7 percent plan to reduce employment (unchanged), and 14 percent plan to create new jobs (unchanged), yielding a seasonally adjusted net 1 percent of owners planning to create new jobs, a gain of two points and the first positive reading in 19 months.

“Overall, the job creation picture is still bleak.  Poor sales and uncertainty continue to hold back any commitments to growth, hiring or capital spending. Job creation plans have been running far below comparable quarters in the recovery from two other major recessions.”

Me, I buy into the economists rationale that one month does not a trend make and that taken as a whole the last few months have been decent to good. I also take some comfort in Kedrosky’s numbers. They at least indicate some sort of optimistic view from an employers’ point of view.

But man those statistics from the NFIB are sobering. We aren’t going to go anywhere until that turns around. Frankly, that report is a recession not recovery scenario. So, I’ll keep hoping but until the small business engine starts firing on a few cylinders it’s kind of like whistling through a graveyard.

You can leave a response, or trackback from your own site.

Leave a Reply