Naroff Economic Advisors — May Employment Report

Joel L. Naroff
President and Chief Economist

INDICATOR: May Employment Report

KEY DATA: Payrolls: +69,000; Unemployment Rate: 8.2% (up 0.1 percentage point)

IN A NUTSHELL: “There is no sugar-coating this report, it was bad.”

WHAT IT MEANS: The so-called “all important” employment report was released today and it was a real stunner. Job gains in May were disappointing, to say the least.

Yes, there were the usual strange elements. For example, construction, including residential and large projects such as road construction was down sharply. There were no other data to indicate this was happening. We also saw major cut backs in seasonal industries such as garden supply stores and in amusement and recreation.

Did we really stop working on our back yards and going to baseball games? Okay, those of us in Philadelphia are a little upset about the Phillies, but that is a different story. But the rest of the report was nothing great as there were few areas outside health care where hiring was solid.

The government at all levels, keeps cutting back and that is not helping. There were other reasons to be concerned. Wages and hours worked were down which has negative implications for income. As for the unemployment rate, there was at least a little some news in the disappointing rise in the rate. The increase was driven by a huge jump in people looking for work.

While employment was up sharply in this survey, it could not keep up with the rise in the labor force. We have been looking for this uptick in the workforce for a while as it normally signals an improving outlook on the economy.

MARKETS AND FED POLICY IMPLICATIONS: There is little positive in this report other than a rise in the labor force. Businesses have become really cautious, a pattern we saw last year at this time. Then, high gasoline prices, a tsunami and the insanity in Washington joined to crater the economy. By the fall, conditions had turned back around.

This year, high gasoline prices, Europe and the looming end of year Washington insanity are playing on the minds of households and businesses. Will we see a rebound as we did last year? That is not clear but we can hope so. I say that because I have no good explanation for the sharp deceleration in hiring has occurred.

Were any of the factors listed above so great as to stop businesses from adding workers? Are households really changing spending patterns because of Europe or Washington? Not if you consider the solid rise in consumption and inflation adjusted disposable income in April. Since I cannot point to anything to clearly explain the slowdown I will simply wait and see and worry.

As for investors who are already fearful of Europe, this report can only add to their concerns. Meanwhile, with rates so low, the Fed really has nothing to do. The markets are doing the job for it.

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