The Market Today

Pandemic Jobs Recovery Not Following Normal Seasonal Patterns

by Craig Dismuke, Dudley Carter


Job Recovery Improves but Not at Rate Expected: The economy added 559k nonfarm payrolls in May, below the expected gain of 675k. April’s disappointing report was revised up only fractionally, from 266k to 278k.  Private sector job growth gained 492k while government jobs increased 67k.  While recovering 559k payrolls is positive, there remain 7.6 million lost jobs and 15 million people continue to receive various forms of unemployment assistance.  The construction sector results were most disappointing, losing 20k jobs, down for two consecutive months.  In the sectors hardest hit by the pandemic, the details show approximately a 15% rate of recovery in May.  The leisure sector recovered 292k jobs and there remain 2.54 million lost.  Restaurants added 186k workers but 1.48 million remain lost.  Education jobs jumped 143k (including both private and public) but there remain 1.1 million unrecovered.

Mixed Messages Coming into the Report: Several economic indicators have recently pointed to a slowing rate of job recovery, primarily driven down by employers unable to fill their job openings.  However, yesterday’s ADP report of 978k private payroll growth and the broad economic trend both pointed to an acceleration in the labor recovery after April’s disappointment.  This morning’s BLS report reflects a slightly stronger recovery, but not at the rate expected.

Labor Market Recovery Not Following Typical Seasonal Patterns: However, the seasonal adjustments are distorting that headline picture.  The pandemic jobs recovery is not following the typical seasonality of job growth during a normal year.  Instead, the rate of non-seasonally adjusted job recovery has remained near one million per month since February: +1.15mm Feb., +1.18mm Mar., +1.10mm Apr., +973k May.  Because job growth is not following the normal ramping up during the early-summer months, the seasonal adjustments are distorting the picture to appear weaker than it is.  But also evident is a slowing rate of non-seasonally adjusted job gains at a time when the economy is running hotter and hotter. This is, perhaps, the best evidence that employers are having difficulty filling their growing number of job openings.

Unemployment Rate Drops on Combination of Factors: In the household report, the unemployment rate dropped from 6.09% to 5.79% as the participation rate dipped from 61.7% to 61.6%.  The number of employed persons increased 444k but the number reporting as not in the labor force increased 160k.  On a positive note, the number of persons unemployed long-term fell 431k and the number of permanent job losers dropped 295k.  Through February, the household data shows 7.1 million fewer people reporting as employed than pre-pandemic and 4.3 million fewer employed full-time.


Treasury Yields Rose Thursday on Strong Economic Data and Were Holding Those Gains Friday Despite Payroll Disappointment: U.S. equities slumped Thursday as Treasury yields jumped after several upbeat economic reports signaled the economic and labor market recoveries continue to move forward, even as supply chain disruptions and materials and worker shortages create headwinds for activity. ADP reported that 978k private payrolls were recouped last month, significantly in excess of the 650k expected, and initial and continuing jobless claims across all programs fell to new pandemic-era lows. Later, separate surveys tracking activity across the U.S. services sectors climbed to new records. The data come at a time when more Fed officials are openly discussing the need to begin talking about when tapering asset purchases might become appropriate. The 10-year Treasury yield jumped following each of the economic reports and climbed gradually higher throughout the day, closing up 3.7 bps at 1.625%. Higher rates hurt shares within the tech sector, with the weakness knocking the Nasdaq down 1.0% on the day. The sector also led losses in a mixed day for the S&P 500, which dipped 0.4%.

Global markets were treading water early Friday, with investors hesitant to commit in one direction or the other before the highly anticipated May payroll report. Mirroring global trends, U.S. equity futures were mixed but holding near flat. Treasury yields too were nearly unchanged heading into the release. After initially dipping following the payrolls disappointment, the 10-year yield had reversed higher and was up 0.3 bps to 1.628% at 7:40 a.m. CT.


ISM Services PMI Hits New Record-High of 64 in May: Current business activity and new orders in the ISM Services survey both rose back to some of the strongest levels on record after moderating in April. The optimistic signal was consistent with comments indicating the recovery continues at a brisk pace. However, supplier deliveries lengthened again to one of the slowest levels in the survey’s history and prices paid hit the second highest on record. As was the case in the manufacturing report, reports of supply-chain issues, including logistical disruptions and materials shortages, and rising costs were prominent in the comments section. Also consistent with the manufacturing survey, and notable leading into to this morning’s payroll report, the employment index cooled with reports of businesses having trouble finding workers.

Williams Says Too Soon to Trim Bond Purchases but “Makes Sense” to Start Tapering Discussions: New York Fed President Williams acknowledged Thursday that, “The economy [is] on a good trajectory,” but said, “we’re still quite a ways off from reaching the ‘substantial further progress’…in terms of adjustments to our purchases.” He went on, however, to say the Fed has “to be thinking ahead, planning ahead, and so I do think it makes sense for us to be thinking through the various options that we may have in the future.” Addressing recent inflation firmness, Williams said, “that a big chunk of the increase…is partly this reversal of price declines from before — what we often call base effects — plus some special factors like used cars,” adding that he sees “those as being worked out over coming months and quarters.”

Kaplan Says “Critical to Start Talking” about Tapering Plans: Dallas Fed President Kaplan believes monetary policy is ill-suited to address supply dislocations in the labor market, saying demand remains strong and is not the problem. The economy has made more progress than he had expected towards the Fed’s goals, Kaplan said, repeating that he “would rather see the Fed sooner rather than later take our foot a little bit, gently, off the accelerator, from a risk management point of view, so that we don’t have to hit the brakes down the road.” He added, “It’s critical to start talking so that you can get in a position to adjust to how the economy’s unfolding.”

Infrastructure-Proposal Gap Narrows Again: Reports indicated the gap between infrastructure spending proposals of the White House and Republicans closed further on Thursday. The WSJ reported that, “During a Wednesday meeting with Sen. Shelley Moore Capito (R., W.Va.), Mr. Biden put forward the $1 trillion proposal, down from $1.7 trillion previously, and outlined options to pay for the spending that wouldn’t boost the corporate tax rate to 28% from 21%, as he previously proposed.” The other pay-fors would include separate measures from the original proposal, including a minimum corporate tax rate of 15%, repurposing previously-approved COVID-19 funding, and a focus on increasing IRS collection rates. The WSJ also said, however, that, “Mr. Biden isn’t abandoning his goal of raising the corporate tax rate and would continue to push the measure in other negotiations.”

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