Friday, June 7, 2013
The May jobs report presents a positive picture of the U.S. economy, even though the unemployment rate ticked up and revisions were on the negative side. From the market's perspective, this report keeps the ‘taper’ spotlight in place, even though the odds of the announcement coming out of this month’s FOMC meeting are even lower now. The consensus view continues to be of 'no tapering' this year, it may be more realistic to start thinking of September as the likely time.
The ‘headline’ May jobs number of 175K came in modestly better than expectations of about 169K and April’s 149K level (revised lower from 165K). The consensus estimate did not fall much following the weaker than expected report from ADP on Wednesday, though many were ‘ready’ for another soft jobs report. The jobs report had been of intense focus for the market in recent days given the market’s ongoing focus on the Fed’s QE program.
The revisions trend was negative, with April’s numbers revised down (+149 vs. +165) and March’s up (+142 vs. +138) for a net reduction of 12K for both months. The unemployment rate ticked up to 7.6% from 7.5%, while average workweek and hourly earnings remained unchanged. Average hourly earnings in May were up 2% or 46 cents from the same period the year before. The labor force participation rate ticked up to 63.4% from April’s 63.3%.
Private sector jobs totaled 178K in May, up from 157K in April and 154K in March; the government sector lost jobs, with federal government jobs declining by 14K in May. Over the last three months, federal government employment has dropped by 45K, likely reflecting the impact of budget sequester. The private sector gains were concentrated in professional and business services, food services, and retail. Professional and business services added 57K jobs in the month, bringing the industry’s 12-month tally to 589K (Temporary jobs were up +26K in May). Construction jobs were up 7K after dropping 2K in April, while manufacturing as a whole lost 8K jobs in May after losing 9K the month before. This is inline with what we saw in the ISM survey, which fell into contractionary territory in May.
While this is a good report, it doesn’t end the ‘taper’ debate. I was of the view that a strong jobs reading of higher than +200K will increase the odds of the ‘taper’ announcement in this month’s FOMC meeting. But this is still a positive report, notwithstanding the uptick in the unemployment rate, and keeps the ‘taper’ issue on the table for a likely September announcement.
Director of Research