The May jobs report: The bull, the bear, and the rational

The data-miners are still combing through the jobs report for May. Below, I present three savvy analysts — each with very different takes on how the economy is doing. I start with David Rosenberg, economist extraordinaire and bear; then move to bullish comments from “Davidson”, an anonymous contributor to the blog for value investor Todd Sullivan; and conclude with another investment advisor/blogger, Barry Ritholtz, who slaps down the bears but is pretty cautious in his outlook.

David Rosenberg – Disturbing tidbits:


First, if it weren’t for the plunge in the labour force, the U.S. unemployment rate would have climbed to 10% in May. Second, the Household survey actually flagged a 35,000 outright decline in employment last month. Third, the 41,000 increase in private payrolls, about one-third of what was widely expected and the low-water mark for the year, was exaggerated by a 29,000 boost from the “birth-death” model. Fourth, the fact that the hottest sector of the economy, manufacturing, could only post a 29,000 gain, a sharp slowing from 40,000 in April is quite disconcerting — especially since it is clear that the ISM index has peaked for the cycle. Fifth, the declines in the financial sector, construction and State/local governments are a vivid reminder that the parts of the economy that were most affected by the bursting of the housing and credit bubble are still licking their wounds and cannot be relied upon to play any role in helping revive what is still very much a moribund jobs market.

It’s not just the labour market that is behaving poorly, but the housing market is too. It is remarkable that with interest rates so low that we would be seeing mortgage applications for new purchases down to a 13-year low. Take a look at page A6 of the weekend WSJ and you will see that Ivy Zelman, the country’s best housing analyst, is calling for nationwide home sales to slide between 25% and 30% in May and that is sequential, not year-on-year (that is very close to a 100% annual rate plunge. Even the usually optimistic National Association of Realtors is expecting “June and July to remain fairly weak”). A survey conducted by Credit Suisse (released on Friday) showed that in stark contrast to the latest National Association of Home builders survey, the traffic of prospective homebuyers in May was back to depths of late 2008 when the financial crisis was in full gear.

via Breakfast with Dave (by subscription only)


Part 1: An anomaly:

…The fact that the [employment] surveys cover ~1% of the population which is then scaled to produce a current est. leaves plenty of room for statistical error. The accelerating employment growth since Dec2009 does not suddenly slow down. In recoveries they accelerate and are the source for consumer spending especially car and light truck sales which have been so strong of late. Economic cycles are slow ponderous things and do not start and stop. Measuring economic activity has always been fraught with errors which are corrected over time and even then becomes only our best estimate. I think the survey sample was an anomaly which will be corrected next month. The data shows similar patterns throughout its history.

via Todd Sullivan

Part 2: On good news from the Conference Board and help-wanted:

Help Wanted Online as tracked by The Conference Board has remained strong at elevated levels. This can only be good news eventually for equity investors. I pulled two excerpts of interest below. There is simply not much commentary to add when the news remains this positive.

The full press release is available at this link:


“After the large 223,000 April increase in online advertised vacancies that kicked off the spring hiring season, employers essentially held steady in May,” said June Shelp, Vice President at The Conference Board. “As the economy comes out of the recession, online demand has risen in a wide variety of occupations. Occupations commonly associated with office work (administrative, legal and computer jobs) as well as manufacturing and construction vacancies are improving but remain below their pre-recession levels, while online demand for workers in sales, education and training, entertainment, food preparation and service, healthcare support and personal care are all at or above their pre-recession 2007 levels.”

Online help-wanted on the upswing

via Todd Sullivan,

Barry Ritholtz — Soft Patch?

As the data confirms, there can be no doubt we have entered a soft patch. Indeed, the following data points confirm a general slowing:

• Jobs: Private sector hiring cooled off last month, with just 41,000 hires;

• GDP grew at a 3% in Q1 2010, down from 5.6% Q4 2009.

• Europe: The problems in Greek Spain and Hungary are likely to lead to significant austerity measures in Europe. Expect the Continent to see anemic growth at about 1% GDP, and that can shave 0.5% off of US GDP.

• Retailers showed a disappointing May, making no gains (outside of Autos).

• Homebuilders sentiment and mortgage apps have plunged, following the expiration of the home buyer tax credit.

• China appears to be guiding its credit and real estate sectors to slower growth.

• Conference Board Leading Economic Index (LEI) fell in April by 0.1% — the first downturn since March 2009; (May data wont be out for another 2 weeks, but it also appears to have softened).

Dr. Copper looks pretty sorry, as commodity prices plunge worldwide.

• Unemployment claims were declining, but that progress seems to have stalled

This is, historically speaking, normal. ECRI’s Lakshman Achuthan told Newsweek: “You always have a spurt in growth out of recession and then you throttle back. But we’d need to see a pronounced, pervasive, and persistent decline in the level of the leading indicators to start talking about recession risk.”

That “pronounced, pervasive, and persistent decline” is simply not present. Indeed, double dip recessions are actually rather rare. As Yale Professor Robert Shiller pointed out in a recent Sunday NYT article, “When inflation-adjusted G.D.P. has come out of a decline and posted three or four quarters of gains, it has never immediately begun to fall again — at least not since quarterly numbers began to be issued in 1947.”

From The Big Picture, Double Dip — Or Soft Patch?


3 thoughts on “The May jobs report: The bull, the bear, and the rational

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  3. Pingback: News about Housing Report issue #33 — Real Estate Market Reports

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