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When bad news is good news for stock markets you know just how convoluted the current economic environment is.
According to the May jobs report out today (Friday), the U.S. unemployment rate ticked up to 7.6% in May from 7.5% in April, the first increase since the start of 2013. And, markets rallied on the news. The Dow Jones soared more than 200 points by mid-day.
Some will say the May jobs report was good news – thousands of out-of-work people returned to the work force, and the 175,000 jobs added beat expectations.
The reality is we’re just treading water. And the labor force participation rate is still at 30-year lows.
But the real good news is the jobs report means more U.S. Federal Reserve support, which will fuel markets already hitting record highs.
“It’s a decent report but it’s not by any means robust,” Conrad DeQuadros, senior economist at research firm RDQ Economics told The New York Times. “It’s certainly not strong enough to get the Fed to make any significant changes at its meeting in June.”
Friday’s Labor Department report came at a time when the Fed is seriously mulling whether job creation is solid enough to start tapping the breaks on its market stimulating $85-billion-a-month asset purchase program. The “decent” showing means the Fed is apt to keep its foot on the pedal for at least a few more months. Some economists say even into 2014.
The Fed has pledged it won’t stop quantitative easing until the unemployment rate hits 6.5%.
Billed as the most important jobs report in years, the May numbers were really quite dull. But the data was vital in determining the Federal Open Market Committee’s (FOMC) future moves.
“These days, the specifics of the report are far less important to our clients than is the effect it may or may not have on Fed activity,” Dan Greenhaus, chief global strategist at BTIG told the Financial Times. “It does nothing to change the broader view that the Fed is set to steadily reduce its pace of asset purchases at the September meeting and that all else equal, good news should be taken as good news.”
Bad News in the May Jobs Report
The reality is jobs are still scarce.
Today’s jobs report showed some 11.8 million workers who were actively seeking work in May couldn’t find a job.
The unemployment rate rose to 7.6% because the labor force grew by 420,000, making it that much harder to find a job.
A broader measure of unemployment, which reflects the number of discouraged workers and those forced to work part-time, is a lofty 13.8%
Job growth last month was concentrated in services sectors such as professional and businesses services, retail, and fast food services and restaurants. The mirrored the familiar pattern over the last several months in which many new jobs being created are low paying. Over the past year, gains in the later category total 337,000 new jobs.
Federal payrolls shed 14,000 jobs, bringing the total number of U.S. government jobs lost in the last three months to 45,000.
The numbers don’t reflect the furloughs many federal employees are facing. The Pentagon plans to furlough 680,000 civilian workers starting in early July. Most workers will lose one paid day a week.
Average weekly hours and average hourly earnings showed scant improvement, as has been the case in recent months.
The Hidden Dangers in May Jobs Report
But here’s what today’s jobs report really says about the economy…
Workers are getting hired at a snail’s pace.
Companies continue to take fewer risks. Instead of expanding payrolls, they are keeping cash on hand – 5.7% at the end of 2012 up from 3% three decades earlier, the Federal Reserve reports.
Until the pace of the economic recovery picks up steam and factories ramp up production, jobs will remain in short supply.
Consider, the employment-to-population ratio has stayed almost constant at 58.5%, well below the pre-recession peak. But the size of the working age population has grown. Moreover, scores of people are delaying retirement.
Getting the unemployed back to work is imperative to long-run growth. The more time workers spend idled, the more their skills erode, dragging down the economy’s potential.
And despite the Fed’s aggressive efforts, its measures have not been particularly effective at stimulating job growth.
- The New York Times:
U.S. added 175,000 jobs in May: Jobless Rate Rises to 7.6%
- Financial Times:
U.S. jobs growth picks up momentum
- The Los Angeles Times:
Economy adds 175,000 jobs in May; unemployment rises to 7.6%
- The Wall Street Journal:
U.S. Adds 175,000 Jobs, Beating Expectations