Payroll Data Disappoints, but Let’s Look at the Number in More Depth
Posted on June 2, 2017
Every one worries about the absolute number of jobs gained each month…250k jobs gained,
150k jobs gained, only 83k jobs gained, etc. But we need to look at the other indicators to
determine if a lower job gain number is actually a bad thing. As we've commented many (many)
times before, we have some demographic issues going on that impact these numbers, as well as
an unemployment rate getting closer and closer to getting below 4%.
Good morning!
• A decent payroll number this morning, but much less than expected and last month was
revised lower
o Payrolls rose only 138k in May, versus the projected 182k gain
• Last month was revised lower from 211k to 174k
o The unemployment rate fell another notch, to 4.3% from 4.4%, which was mostly
due from lower labor force numbers, which fell by 429k, which leads me to…
o The participation rate fell as well from 62.7% from last month's 62.9% (this
shouldn't surprise anyone…we do have a demographic issue going on here and a host
of baby-boomers leaving the workforce every single day)
• As I've been saying – don't get too discouraged with these much lower
prints on payroll gains each month…hard to grow 200-300k jobs when you
have the unemployment rate getting closer to cracking below 4%
• Are we at full employment? Many have reasons to say we are and others
say we are not…but we are very, very close (if we are not already)…bottom
line, there will be smaller job gains moving forward with the economy
running this close to full employment
o Also, if you read my notes daily, you'll know I don't even read the ADP employment
numbers that are released each Thursday prior to the headline employment report
today…the reason: everyone knows it is a horrible gauge of the government number
which the market actually trades off of…and usually doesn't correlate at all
• This month was a perfect example…ADP yesterday showed 253k jobs
added, which the market likes to see (even though they know it is a bad
correlation)
• The market today, after seeing the "real" number, is trading much lower
• 2-yr treasury now at 1.27% from 1.30% earlier
o What many were really looking for was the average hourly earnings
• Monthly, earning only grew 0.2% as expected, below the 0.3% growth from
last month
• Year-over-year wages grew 2.5%, below the 2.6% expected
• This is where the Fed may have concerns…not so much for the next
meeting here in June, but what comes after? Can they increase rates again in
September/December??
• This meeting is also very close to the debt ceiling/budget
showdown…oh yeah, that…should be fun!
• Yesterday
o The ISM manufacturing index rose slightly to 54.9 in May
• Prices paid plunged to 60.5, down a full 10 points from March
• The new orders index improved from 57.5 to 59.5 and employment rose
from 52 to 53.5
o Weekly initial jobless claims were 248k vs. expected 238k, still in very low territory
o April construction spending fell 1.4% vs. the projected +0.5%
o The Atlanta Fed's 2Q GDP Nowcast estimate was revised up to 4.0%
• FedSpeak is the focus now, leading up to the next FOMC meeting in a couple of weeks
o Fed's Powell said he could see two more rate hikes this year
• For the timing of the balance sheet unwind, he cited the May minutes,
noting that unwind will happen after normalization of the fed funds rate is
"well under way"
• "most FOMC participants think that this condition will be satisfied later this
year"
• He added that it's "hard to see" the balance sheet getting below a range of
$2.5-3 trillion
• Remember, on the unwind of the balance sheet, members are committed to
make it as well-communicated, boring, and non-newsworthy as possible
o Harker and Kaplan speak today
• Next week will be a slow one with regard to data
o Add to this the Fed's blackout period starting as the head into the meeting, it would
be a good week to get away…you won't miss anything
• In other news:
o The WSJ also reports that Congressional GOP is considering taxing employer
health plans
o Bloomberg discusses what the Fed will be watching in today's employment
report
o Reuters writes that oil is falling as investors fear the US withdrawal from the
Paris Accord means more drilling in the US
o Bloomberg lists many reasons why the consumer is not spending
• Oil down and gold up
• Treasuries
o 2-yr: 1.28%
o 10-yr: 2.17%
o 30-yr: 2.82%
• LIBOR keeps trickling higher in anticipation of a Fed move in a couple of weeks
o 1-month: 1.08%
o 3-month: 1.22%
• Fed funds effective was 0.91%
Have a wonderful weekend!! I'll see many of you in Pinehurst early next week, commentary will
be back Wednesday.
Fred
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