The May jobs number for private workers was much weaker than median forecasts, the Labor Department reported today. Frankly, I wasn’t surprised. The fear factor in the economy is just too big for hiring authorities to risk adding employees very aggressively.
As expected, the nonfarm payroll number appears to be big at 431,000. But 411,000 of those workers are temporary Census Bureau workers, as I explained in a previous post. The real shocker: private employment grew by a very weak 41,000, less than a quarter of the 180,000 median forecast in the Bloomberg survey.
I know that I have been pretty down on the economy, even as the stock market rallied hard from its March 2009 lows. In my view, the stock market just has not been a very good indicator of the real economy where you and I operate. Or at least it’s not a very subtle measure of whether or not the jobless rate will fall very much. The unemployment rate did go down a notch, to 9.7% from 9.8%, again, largely as a result of Census hiring. The other lid on that unemployment rate: the stubbornly high number of people who have given up on looking for jobs, currently hovering at 46% of the non-working public.
This jobs report is another way of saying the confidence game is waning. Last year everyone spoke about little green shoots in the economy; I was suspicious but couldn’t deny that things felt better. And “feeling better” is an important component in the recovery. So I kept our meager savings in the U.S. stock market, participating in the run-up. But I will share with you that about week or so ago I sold most of our U.S. equities and am now sitting on about 70% short duration bonds and cash; most of our other investments are in commodities and emerging markets and value.
I’m not a trader, which is why I don’t generally share my investing decisions. Our money, such as it is, is for retirement and a little for our kids’ education (may they please get scholarships). But I feel that we can’t afford to go through another round of intense volatility. It’s not just the U.S., of course, that is making everyone nervous. There’s a litany of problems from Greece to the U.K. to China. And, then there’s BP, which has become a metaphor for all the weaknesses in how are system works: lax business practices, lax regulation — a general lack of willingness to take responsibility for what was, what is, and what will be.
The jobs markets, at least to my mind, confirms that those who have the ability to hire are feeling the same way.
For the record, the jobs report wasn’t completely glum: Those who still have jobs, continued to see hourly wages rise, up 0.3% in May for the private sector. The average workweek also rose by 0.1 hour to 34.2 hours. Temporary hires in the private sector also gained 31,000, up a total 362,000 since September 2009.
Those are pretty dim beacons. Hiring authorities are extending hours and chipping in a few more pennies to current workers. You can also interpret that to mean that productivity is still the leading reason for growth in the economy. In fact, productivity has become a much bigger component in leading this country out of the past three recessions, according to data from the Federal Reserve Bank of Atlanta . This recovery appears to be on the verge of stretching that relationship. But Atlanta Fed President Dennis Lockhart says that the economy can’t grow simply on the back of improving productivity; soon, companies will need to hire to stay competitive:
“I do not expect the recent outsized productivity growth to continue indefinitely and become a new, permanently higher trend rate. Some degree of ‘wait and see’ behavior is at work and is no doubt reflected in the productivity numbers. With growing economic momentum, deferral of hiring will become riskier.
“Some employment gains should result as labor productivity levels out and falls back over time to something resembling the historic trend rate. But the pace of hiring is likely to be gradual. Current data on the use of part-time workers suggest that businesses have some scope to increase hours without hiring new full-time employees. And there are other, more structural obstacles to the rapid reemployment of the jobless. Some jobs in the construction sector and certain manufacturing industries are likely permanently lost, requiring some amount of migration of workers to other sectors. And, for a time, skill and geographic mismatches may frustrate employers willing to hire.
In other words, even with the fiscal stimulus and aggressive easy money policy at the Federal Reserve, all the data watchers can do is to watch and wait to see just how long it will take for the jobs market to recover. While we’re watching and waiting, I’m going light on risk.
Productivity gains are playing outsized role in economic growth
Graphic via The Federal Reserve Bank of Atlanta