Thoughts on Jobs & ISM Reports

May '12 net change in NFP came in at 69K, significantly below expectations.  March and April numbers were revised down by 11K and 38K, respectively.  Official unemployment rate edged up to 8.2% from April's 8.1%.  The broader U-6 unemployment rate went up to 14.8% from 14.5%.

We will discuss a few things that stood out in this report.

There was a decline of 13K in government jobs.  We think this will turn around as we get closer to the elections, no matter how much cost cutting the politicians preach.  Temporary jobs increased by 9.2K and represented 9.5% of increase in private service type jobs.  We continue to believe that higher temp figures are not good news for the state of employment.  They indicate that the jobs issue is still in a turnaround and not necessarily a recovery mode.  Construction industry recorded the biggest decline of 28K, while jobs in transportation & warehousing industries led the way with an increase of 35.6K.

What really stood out, which goes along with what we have been saying for a while, was the lower than expected increase in hourly earnings; 0.1% versus a 0.2% estimate.  In addition, average workweek (hours) declined to 34.4 from 35.5.  These figures (along with some data that we pointed out yesterday) indicate that the slowdown in the job market is more likely to continue through June.  They also indicate that good growth in consumer spending, which increased along with consumer credit, will not last too long.  Lastly, we believe lack of growth in wages will slow down the recovery that many think has begun within the housing market.

Manufacturing ISM for May came in at 53.5, below our 54.5 estimate and the Street's 54.0.  The employment index of this study declined, indicating a slowdown in hiring.  This is similar to most of the Federal Reserve Bank districts' survey results.  The same can be said of the inventory, backlog and production indexes, which as mentioned in other posts, indicate a possible slowdown in this recovery.  We note that while new orders were up, again, the backlog and inventories tell a different story in terms of expectations for the next 3 - 6 months.