Merk Investments: May Non-Farm Payroll Report Sees Fifth Consecutive Decline
The May non-farm payrolls report saw -49K jobs shed during the month and an additional -8K added to the tally for April, bringing the total loss for the report to -57K, slightly below our forecast of -65K. The major catalysts for the monthly declines were the -66K fall in total private sector jobs with the goods producing sector losing -57K, construction -34K and manufacturing -26K. Trade and transport shed -41K, business services -39K and the financial sector -1K. The only positive catalysts for the month were the education and health sector, which added 54K, leisure and hospitality 12K and the government 17K.
The always interesting birth-death model estimated that 217K new jobs were created during the month with the leisure and hospitality sector adding 77K to the tallies and the construction sector contributing 42K to the total. We mention both of those areas specifically because the BLS has the economy creating more construction and leisure/hospitality jobs in mid 2008, a time when the economy is moving sideways at best, than in mid 2007 which saw growth rates of 3.8% and 4.9% during the middle two quarters of the year. Our observation of macro-economic conditions does not support wholesale business creation in the construction, retail leisure, hotel and restaurant sectors that makeup the leisure and hospitality industries.
Perhaps the major development for the report was the jump in the rate of unemployment to 5.5% vs. the 5.1% in April, on the back of -285K net losses in the household sector. The 0.4% increase in unemployment was the largest in 22 years and the rate is the highest since October of 2004. The major factor behind this development was the increase in the rate of unemployment among 20-24 year olds. The rate of unemployment in this cohort increased from 8.9% and 10.4%. Over the past 10 years the data has not see any jump in the unemployment rate in this cohort from the April-May reporting period. This does look to us like another problem with seasonal adjustments due to the early arrival of young people into the labor force in May, that the normally occurs in June. We would expect that the “teen angst” at the BLS to subside over time, which should lead the bureau to correct this in subsequent months, which would provide a slightly downward revision to the overall rate of unemployment.
The fifth consecutive decline in the non-farm payroll report looks a lot like a recession to us. Regardless of whether one thinks that this is a recession or a growth recession, any way you slice it, the increase in the overall rate of unemployment is linked the inability of the economy to accommodate the arrival of new workers into the labor pool. More importantly, going forward once the observation by the public of the evolution of the data will have a deleterious impact on consumer psychology and market sentiment. While the labor market has not completely collapsed, the tallies for 2008 have been consistently negative and the difficulties at the BLS in adjusting for the creation/destruction of jobs and changes in the composition of the workforce have already set the stage for major negative revisions later this year.
Joseph Brusuelas
Merk Investments
Chief Economist/VP Global Strategy
|
