Today's jobs report offered real reason for investor concern, as nonfarm payrolls only barely increased when excluding the hiring of census workers. Wall Street Greek has once again been one of few voicing warning, but on Friday, the market seemed to agree. The Dow Jones Industrials Index dropped steadily through the day, shedding more than 3% before finishing.
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Who could blame lady market for bailing on her man Friday, as a Hungarian insolvency scare and a horrible jobs report combined to remind investors that major obstacles remain before a stumbling economy. The market was in no hurry to buy stocks ahead of the close, given the uncertainty around the Hungarian situation. Also, the President's lip service regarding the labor market was not enough to fool an investment community all too well aware of the trouble on Main Street.
Jobs Report for May 2010
Heading into the data release, the gurus on tower high said May would show blockbuster job growth. Perhaps they ventured a bit too high in altitude through their helicopter airlift to the Hamptons last weekend, killing a few brain cells before reaching the beach even. OR maybe all the good economists have been replaced - due to hard times on Wall Street - by cheaper, bonus-free, lightly seasoned business school grads now taking the tally in their stead. Why else would economists be looking for 100+ non-census related jobs in May, given the ongoing pain seen in weekly jobless claims all month. Well, that might have had something to do with the mysterious results in March and April, when construction turned positive on a now non-existent housing tax credit.
Nonfarm Payrolls increased indeed, but by far fewer a number than economists were looking for. Exposing the naked truth, when we strip out the census worker hiring of some 411K lucky bloats, private nonfarm payrolls only increased by a net 41,000. That means the government (public sector) shed jobs when excluding the census, which should have been expected given budget constraints. The Labor Department chose to highlight this private sector figure, since it's bigger than the real result of 21K overall net job growth (including government); but that's why you read The Greek.
Administration Lip Service
The government tried to find other positives to highlight as well, guessing you do not have your own personal analyst working for you. Little did they know... The Administration was really reaching this morning, as the President and his men noted the streak of consecutive months of job increases. The market, though, she does not care about all that; she's a lady that banks only on today. Given May's data, she left town in a hurry with a gold miner.
The long-term unemployed count just keeps growing, and now encompasses 46% of the total jobless pool. That means that some 6.8 million Americans have been unemployed for 27 weeks or more. We are guessing the sales of happy pills are on the rise. Those of us working part-time, who would rather be employed on a full-time basis (read have no cash to spend), declined to 8.8 million in May, down from 9.2 million in April. We are guessing many of these individuals got jobs working for the census, and maybe some found full-time work. It's likely that a bunch also lost the part-time work they had, and others had their hours increased and qualified for full-time credit. This is happening in the manufacturing sector, where growth is spurring renewed shifts and even hiring.
We like to take a tally of real unemployment, or what others call under-employment. We have our own version of the underemployment rate here, which we like to publish monthly. Our figure includes part-timers who once worked full-time, in the count. This adjustment also adds back "discouraged" and marginally attached workers, who are not counted as part of the workforce or unemployed. If we add back the 2.2 million (2.4 million in April) displaced workers to the labor market, and include the 8.8 million underemployed part-timers in the unemployed count, adjusted unemployment reaches ((14.973M + 2.2M + 8.8M) / (154.393M + 2.2M)) * 100 = 16.6%. That's down from 17.1% in April; 16.9% in March; 16.8% in February; and 16.4% in January.
As you can see, this is the first month of improvement in this metric in some time. However, it appears that the marginally attached, unemployed and involuntary part-timer counts all moved favorably on the addition of census workers. However, the size of the labor force decreased, which is not the expected impact of the census. In fact, this is very concerning to me, since it indicates the census was unable to pull a net positive number of people into the workforce who might have been outside of it previously. In other words, the nation's labor force should have increased due to the census, but it declined instead. This is very troubling in my view. Where are these people disappearing to? Have they died of stress? Well, the number of "discouraged workers" increased in May by 291K, to 1.1 million. These are people who do not believe there are jobs available for them.
The Employment Situation Report consists of two surveys, the Household Survey and the Establishment Survey. The Establishment Survey shows Payroll increases were driven by the manufacturing sector (+29K), temporary services (+31K), mining (+10K) and health care (+8K). Construction produced a net job decrease of 35K in May, offsetting the gains of the prior two months. The real estate market is clearly at a crossroads, and not many experts can tell you what comes next with confidence. We have two reports from our real estate columnist in the pipeline for you, so stay tuned.
Government jobs attracted a boat load of attention this month, as the government hired 411K census workers in May. Still, on net, government added 390K jobs, so the shedding of firemen, police and others continues throughout the nation, as local politicians would rather cut costs than raise taxes ahead of November elections (or any election for that matter). Meanwhile, the streets deteriorate and crime increases. Something important to note: 564K census workers are busy these days, but have an uncertain future to look forward to once their job is done.
The average workweek for employees on private nonfarm payrolls increased to 34.1 hours, which is a result of busier factories. Average hourly earnings also increased slightly, by 0.3% or 7 cents. In the revisions, we note that while April's payrolls stuck at +290K, March's data was revised lower to 208K.
The big change in May seems to be warning investors that a double-dip may be due. Inventory restocking may have run its course, and economic activity seems to have little catalyst domestically nor internationally these days. The month-over-month growth we are seeing is off low numbers, and economic activity in absolute value is not impressive. Nor does anchored unemployment poise an economy for organic growth. Unfortunately, a sad summer for stocks seems likely.
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