Jobs Report Suggests Growth Story Intact

Posted | by David Moenning |

It's the first Friday of the month, which means it is time for the Big Kahuna of economic data - the jobs report. So, without further ado, let's get to the report and review the bevy of numbers.

The headline everyone focuses on new job creation for the month. So, let's get right to it. The Bureau of Labor Statistics reported that Nonfarm Payrolls came in at 223,000 for May, which was well above the expectations for 190,000 - and thus considered a surprise to the upside.

As usual, there were revisions to the two previous reports. April's total was revised lower to 159K from 164K, while March's job gains saw an increase of 20K to 155K. In sum, the adjustments mean that the economy created 15K more new jobs than initially reported. The average job growth over the last three months stands at now stands at 179K.

The next big headline in the report was the nation’s unemployment rate, which was also a surprise, coming in at 3.8% for May. This was below than the 3.9% estimate and last month's number. Note that the current unemployment rate represents a more than 18-yer low as the last time the rate was at 3.8% was April 2000.

The drop in the unemployment rate was attributed to another decline in the labor force participation rate, which was 62.7% - a tenth below last month. We note that there were 281K fewer unemployed last month, which is a positive.

Also positive is the fact that so-called "Black Unemployment" fell to 5.9% from 6.6% last month and now stands at the lowest level on record since the Labor Department began tracking this statistic in 1972.

On the inflation front, the government reported that wages grew by 0.3% in May, which was up from April's 0.15%. On a year-over-year basis, wages increased by 2.7% which was a tenth last month's reading of 2.6%.

The average work week improved to 34.5 hours from April's read of 34.1 hours.

The private sector was described as being "on fire" as 218,000 new jobs were created in May, which was well above the 168,000 new jobs last month.

The "U6," which represents a broader measure of unemployment due to the fact that it includes "discouraged workers," fell to 7.6% from 7.8% in April and is the lowest seen since May 2001.

Stock futures have pulled back a smidge on the report but still point to a positive open. However, bond yields are movin' on up as this report is viewed as stronger than expected and puts the possibility of a 4th rate hike this year back on the table.

From a macro view, I'm of the opinion that the jobs report confirms that the "growth story" remains intact.

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At the time of publication, Mr. Moenning held long positions in the following securities mentioned: none - Note that positions may change at any time.


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