May Employment Report
On the surface, this looked good. Just below the surface it looked awful. Into the core it actually looked alright. How is that all possible?
The headline number of 431,000 jobs looks good until you realize almost all of that was from the Census workers. Only 41,000 private payrolls. That's not particularly encouraging. This is a big relapse from March and April where we grew by an average of 183,000 a month in private payrolls. The 183,000 pace is not great, but it is much better than out of the prior two recessions. Still, it needs to be better and I suspect it will be as the year grinds on. Still, the diffusion indices indicated that most industries were hiring in May, though it had fallen back from April's very strong reading.
Now, the actually good parts of the report were found further into the bowels of data tables. Specifically I am talking about aggregate weekly hours for private industries. Here we saw the index tick up 0.4% after a 0.4% increase in April and a 0.5% increase in March. On an annualized basis, that is right north of 5% growth in aggregate weekly hours. Aggregate weekly payrolls, which is (hours*payroll employment*wages), increased a still better 0.6% after 0.8% in April and 0.3% in March.
For a comparison to the prior two recessions here is a graph:
This once again is the better measure than the headline payrolls number because it indicates the actual amount of labor demand in the economy as measured by hours. So long as this continues to increase, jobs will be created. Now, it is not bouncing back as quickly as it did from 1981-82, but on the other hand no one expected it to. This was a different kind of recession. It would have been nice if it was as simple as being caused by 21.5% interest rates to break inflation.
May Manufacturing ISM Survey
This report was unambiguously positive. The headline number backed down only slightly from 60.4 to 59.7. This is still well within roaring growth territory. New orders remained exactly where they were, production backed off slightly, and employment actually accelerated. Just to give some ideas about the internals, 50% of respondents said they were seeing growth in new orders while only 12% said they were seeing contractions. Similarly for production 51% said they saw better production levels, only 12% said production declined. For employment 28% said they were hiring versus 6% said they were firing.
There are virtually no signs of a slowdown according to the ISM survey.
May Non-manufacturing ISM Survey
Not quite as robust as the manufacturing survey, but stable at 55.4 in May from April. There was literally not a 0.1 point change, even. Business activity came in at a roaring 61.1 with 38% reporting better business and only 9% reporting worse business. Employment improved, new orders fell off a bit, and order backlogs increased. Worryingly, inventory sentiment now registers as being too high, indicating that the inventory builds we have seen in recent months may taper off. We'll see what happens on that front.
April Construction Spending
This was a pretty healthy number even below the surface. A 2.7% month on month increase mainly driven by residential construction at a 4.4% increase. We can expect that end to come down a little bit, but non-residential also grew as did public outlays. The fact that non-residential improved is a good sign, but will need some confirmation in the coming months. Keep your eye on residential outlays. That could be a little rough in the next 3-4 months due to the expiration of the tax credit.
May Auto Sales
This was a fairly solid report with sales coming in better than expected and confirming a gradual upward trend in sales to an 11.63 million vehicle rate from 11.2 million in April. It is slightly below March, but March was well above the prior three months. This has been somewhat start and go, but it does indicate slowly recovering consumer spending on durables. This is still a puny rate of auto sales, however, and has a long way to go to recover to the 15 million or 16 million annual rate that would be more appropriate for a recovery.
Other Reports and Indicators
Jobless claims edged down again to 453,000, reversing that spike we saw a couple weeks ago. Still, jobless claims are at an irritating level, indicating a fairly high amount of layoffs relative to hires.
Monthly chain store sales were somewhat weak, but a lot of this has been attributed to oddities in the weather in May. Combined with auto sales for the month, it is hard to get a good picture of what total retail sales were in May. I suspect it will be down a little bit ex-autos and flat overall once the Census' retail sales report comes out on Friday of next week. Keep your eyes peeled for that one.
Weekly retail sales firmed up a bit in the final week of May, which might portend well for June, but these are hard figures to read. The late Memorial Day is forecast to shift some May sales into June. The weekly reports did indicate the softness in the May sales figures we saw in the monthly reports, so maybe it is worth paying attention to these as June rolls on.
Productivity data were revised down because GDP was revised lower and hours were revised up. As productivity is the quotient of the two, that makes sense that we would have seen this. Overall, productivity growth has been extremely robust in this recession and recovery and workers may be near their limits for increased output.
Factory orders and shipments data told us what we already knew: manufacturing has been coming back rapidly.
And that should about do it.
Bloomberg Economic Calendar
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