The US economy added 559,000 jobs in May, the BLS said Friday.
In a normal environment, that would be a stellar number. At the current juncture, it counts as lukewarm, at best.
Officially, May’s headline print was a downside miss. Consensus was looking for 670,000 (figure below). The range was 335,000 to 1 million. A sizable ADP beat seemed to presage a similarly ebullient NFP, but once again, the ~1 million blockbuster market participants have spent months whispering about proved elusive.
Notably, April’s downside “shocker” was barely revised (to 278,000 from 266,000). March got a similarly modest bump.
Private payrolls rose 492,000, about half of the ADP headline. That was a woeful miss. Consensus expected 610,000.
Leisure and hospitality added another 292,000 jobs (figure below), welcome news, but well short of anything that suggests the services sector is on fire. The government noted that “pandemic-related restrictions continued to ease in some parts of the country.”
Around two-thirds of the increase in leisure and hospitality was down to food services and drinking places, which added 186,000 positions. Employment in leisure and hospitality remains 2.5 million jobs (or 15%) lower than pre-pandemic levels.
Average hourly earnings beat which, I’d argue, could be construed as bad news at the margins. MoM, AHE rose 0.5%, more than twice consensus. The YoY print was a sizable upside surprise too, at 2% versus 1.6% expected. Although this is an on-the-fly generalization, that may suggest that front-line workers (where pay is generally low) aren’t coming back as fast as one would hope in a services-driven economy.
Manufacturing added 23,000 jobs in May. That was (basically) in line with consensus. America’s factories are still short around a half-million workers from February 2020’s levels.
Education was a bright spot as in-person learning came back online (err… offline). Employment rose by 53,000 in local government education, 50,000 in state government education, and by 41,000 in private education.
The unemployment rate fell to 5.8%, better than the 5.9% the market expected, while the participation rate ticked lower.
For markets, it’s possible this could be construed as a “Goldilocks” report. The headline wasn’t soft enough to cause extreme consternation and it certainly wasn’t hot enough to burn anyone’s tongue. No burned tongues means no additional urgency for Fed tightening.
That said, headlines will probably feature the word “disappointment” (or a synonym). Mine did.
An honest appraisal is probably that the labor market continues to work its way slowly back to a semblance of normality. But subdued (relative to expectations) headline prints suggest the journey will be arduous and, at times, uneven. Ironically in that regard, gains in May were seemingly broad-based, with most sectors adding positions.
The bottom line, though, is that 7.5 million jobs are still MIA. There are no caveats for that.
The market narrative of a quick bounce in employment followed by rapid unwinding of Q/E looks flawed. That said the numbers were pretty good, just not up to the clack on the street. The Fed just starting the first step in unwinding the extraordinary aid. They announced they would sell their corporate bond and corporate bond ETF with a goal of being out by the end of the year. The next logical step will be to gradually reduce Q/E and get to flat by the end of 2022 or early 2023. If all works out that could set the stage for raising short term rates off zero by somewhere around mid 2023 to early 2024.
The silliest thing about the corporate bond “unwind” story is that there’s nothing to “unwind.” Not really anyway. Those facilities were almost purely symbolic. It was “the thought that counted,” so to speak. As BBG’s Seb Boyd (he’s good) put it this week, the actual purchases barely counted as a rounding error — they “added up to a Thursday in the primary market.” Combined high grade and HY supply was almost $200 billion last month alone. Compare that figure to the size of the Fed’s corporate bond “portfolio.” That’s not moral hazard. It’s not even a drop in the bucket.
It is also well to keep in mind that employment tends to be a LAGGING indicator of the economy both up and down, and that there is so much going on that numbers alone have large errors. We won’t get a clean read without so much noise until this fall is my guess.
I have been in Boulder, CO, Chicago, IL, Seaside FL and the Bahamas in the past 10 days. Nowhere was “back”. Seaside was the busiest, everywhere else was at 50-75% capacity. I am fully vaccinated and just got my negative covid test results so I can get back in the US. The amount of paperwork involved to travel now is insane, fyi.
I was on a “binger”.