Troubling Labor Market Now a Trend

The U.S. labor market remains front and center today following another disappointing monthly jobs report this morning. This is becoming a trend now, with three back-to-back monthly jobs reports missing expectations.

It appears that the brief spurt of labor market momentum during the winter months is now firmly behind us and the labor market is losing steam. The question at this stage is whether these jobs numbers are bad enough to prompt a fresh response from the Fed.

But irrespective of what the Fed does or does not do, they are not good enough to produce a meaningful improvement in household buying power.

Jobs no doubt remain the day’s top item, but questions about global growth will not be far from investors’ minds either. We will get the May manufacturing ISM survey results a little later, with expectations of a modest pullback from the April level.

But the same data for China and Europe this morning doesn’t inspire much confidence. The official Chinese PMI data for May came in weaker than expected and remains barely in expansionary territory. The rest of the emerging world is not looking much better either, with the Indian economy expanding at its slowest pace in three years in the first quarter and the outlook for Indonesia and South Korea not that good either.

The U.S. economy is not as trade-dependent as many of these other economies and can sustain moderate growth on its own. But this decelerating growth outlook for the emerging markets is nevertheless a headwind for the corporate sector. Don’t forget that more than a third of the revenue of the S&P 500 companies come from abroad, with emerging markets accounting for a fast-growing slice.

On the jobs front, the Bureau of Labor Statistics (BLS) reported May non-farm payroll gains of 69K, less than half of what was expected and below April’s 77K (revised down from 115K originally). Ominously, revisions for prior months reversed the positive trend of many months and turned negative. The April and March tallies were sharply revised lower from the original levels, likely indicating a serious loss of momentum.

Private sector jobs totaled a meager 82K, compared to 87K in April, with a number of sectors (construction/leisure & hospitality) suffering major jobs losses. These numbers are even weaker than what we saw from Automatic Data Processing ( ADP - Snapshot Report ) on Thursday.

The unemployment rate, which comes out of the Household survey, increased to 8.2% from 8.1%. Average hourly earnings increased 0.1% after an increase of the same magnitude in April. The labor force participation rate, whose low level in this recovery has been a hot topic as evidence of discouraged workers, increased to 63.8% from 63.6% in April.

In corporate news, Vera Bradley ( VRA - Snapshot Report ) , the maker of women’s accessories, came out with better-than-expected first quarter results, while OmniVision Technologies ( OVTI - Analyst Report ) came short of expectations. The post-IPO lockup period for Groupon ( GRPN - Snapshot Report ) , the daily-deal company, ends today.

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