Disappointing May Labor Report

The May jobs report was solid but unspectacular. April’s reading was revised up like we expected, but not by much. It was pushed up by 12,000 to 278,000 which means it was still very disappointing. In May there were 559,000 jobs added which moderately missed estimates for 650,000 jobs added. If job creation stays at this pace, it will take until July 2023 for the economy to recover all the jobs lost in the recession and the jobs that would have been added had job creation continued at the prior rate. Double this rate would get those jobs back by April 2022 which had been our prediction.

As you can see from the chart below, Oxford Economics believes the labor market will get to the pre-recession level (not adding in trend growth) mid to late next year. They think job creation will be strong in the next few months before normalizing right before gaining all the jobs back. It’s worth noting how much quicker jobs are being recovered compared to the last recession.

Some folks are mad that the stock market has more than recovered its losses while the labor market still isn’t back to normal. Firstly, stocks price in the future. They should be happy stocks are going up because that means investors believe the economy will improve. Secondly, it’s not true that investors don’t want the labor market to improve. The best situation for investors is the one we are in now: elevated and declining unemployment. Investors want more jobs to be added.

Where The Jobs Were

492,000 private sector jobs were added which means there were more government jobs added than expected. 67,000 were added which was above estimates for 25,000. Only 23,000 manufacturing jobs were added which missed estimates by 14,000. Plus, last month’s reading was revised down by 14,000 to -32,000 which means there were net losses in April & May combined even with the strong PMI.

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