US Jobs Surprise

Who knew? Did anyone see that coming? Jobs growth of just 266,000 with big downward revisions to the March number from 916,000 to 770,000. Private payrolls rose just 218,000 with manufacturing employment actually falling 18,000 while trade and transport dropped 81,000, retail fell 15,000 and temporary help fell 111,000.

These decreases don't make a whole lot of sense given the strong performance of all these sectors, in terms of activity, over the past couple of months. Construction employment was also flat for the month and this also seems out of kilter given the booming residential construction sector that is more than offsetting weakness elsewhere.

However, we did see a boost in leisure and hospitality with an increase of 331,000 reflecting the re-opening and government employment increased 48,000. The poor jobs reports was confirmed by the rising unemployment rate to 6.1% from 6.0% (consensus 5.8%). Its worth noting that the unemployment rate is calculated from another survey (payrolls asks business, unemployment asks households). We saw worker participation rise by 430,000 – people returning to the labour market – while employment rose only 328,000. 

Does the Fed Know the Score?

The US economy has been making good progress since the economic lows of the pandemic last April. 22.4 million people lost their jobs back then. Fast forward to now, and nearly two thirds of that number have found jobs leaving a net loss of 8.2 million. This is a pretty impressive gain over the last year but the jobs reports still shows a clear slow down and the Fed really does want to see a series of strong job reports before considering a change in their policy. It's not all about jobs though as inflation is playing a critical role in this decision and the narrative around 'transitory' inflation might come back to bite them. Essentailly, inflation might be run hotter for longer than they expect and cause them to rethink there stance much sooner. The jury still out on that one.

What About Supply Issues?
Is the labout market softness more of a supply issue than a demand issue. Possibly. There are many job openings that are not being filled 59% of small businesses reported hiring or trying to hire in April, but 92% of those firms reported few or no qualified applicants. This tells us that there is a huge demand for workers but a lack of supply and this will bea drag on the labout markets for a few months. What is causing the imbalance between supply and demand? Lockdowns and schooling at home have constrained parent's ability to go out and work. In conjunction with extended and uprated unemployment benefits that will continue into September, there is a decreased incentive to go out to work.

Silver Linings

The US economy is recovering well, even if it is a bit uneven. However, getting all those jobs back will take time. Its a little bit like the stockmarket. It takes the elevator down when it crashes as it did last year at the beginning of the pandemic. Then the markets take the stairs up which  they have over the last year or so, with a steady climb to new all time highs.