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June 5, 2009
It is always easy to start this article the day of an employment report, because it is typically clear that little else matters to the market ahead of its release. That was the case again today.
Headlines like the FDIC reportedly calling for a management purge at Citigroup (C), and news that calls are increasing for British Prime Minister Gordon Brown to step down, stood in as items of interest ahead of the jobs report. Yet, they were really little more than talking points for talking heads needing to fill time before the main event.
Notably, the futures market exhibited a bullish disposition ahead of the jobs report that was in keeping with the prevailing trading trend.
The early bid had some front running characteristics to it, as we suspect speculators were anticipating that the market would treat the employment report much the same way it has treated other economic data, which is to say it would look at any bad news with blinders on and any semblance of good news as green shoots with roots.
In a certain respect, those speculators got what they were looking for.
The Labor Department reported that "only" 345K nonfarm payroll jobs were lost during the month. That was indeed much better than the consensus estimate of -520K. Moreover, the April nonfarm payrolls data was revised up to show a decline of -504 positions versus an originally reported -539K.
The other headline that jumps out is the unemployment rate, which spiked to 9.4% from 8.9% and is at its highest level since 1983. The big uptick is owed in part to an increase in the civilian labor force, meaning there were more people looking for jobs. That is being read in counter-intuitive fashion, though, as a sign that it reflects increasing confidence in the economic recovery.
Hourly earnings increased 0.1% as expected, yet the average workweek dipped to 33.1 hours from 33.2 hours, which isn't a great portent for a pickup in hiring. By the same token, the -0.2% decline in the manufacturing workweek isn't a great portent for a pickup in industrial production.
By sector, job losses were seen in every category with the exception of education and health services (+44K) and leisure and hospitality (+3K). The manufacturing sector saw 156K job losses in May.
The market has taken off with the nonfarm payrolls number, which isn't surprising since traders typically react to cursory headlines. This report, however, doesn't contain good economic news.
From the drop in the workweek, which suggests hiring isn't likely to pick up soon, to the unemployment rate, which left the 2009 average rate at 8.48% and above the 8.1% average factored in the White House deficit projection for FY09, to the increased rates of long-term unemployment and increased rates of underemployment, the May report doesn't set a good stage for a meaningful pickup in consumer spending, even if it sets the stage for an opening rally.
As of this posting, the S&P is projected to start the day with a gain of 1.0%. The coming stock advance is weighing heavily on the Treasury market where the yield on the 10-year note has risen to 3.81%.
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