Friday, June 4, 2010

Economists React to the Employment Report: ‘Recoveries Don’t Move in Straight Lines’ and "Worst Employment Reports and Worst Reactions to Employment Reports"

First up, Real Time Economics:
Economists and others weigh in on the census-boosted jump in nonfarm payrolls and the decline in the unemployment rate.
The May employment report underscores the fragility of the economic recovery… If anything, today’s data show that employers took a breath last month — perhaps they were spooked by all the tape bombs that overloaded the news wires or maybe this number was a payback for the outsize gains in March and April. Recoveries do not move in a straight line and NO, this is not a sign we are about to double-dip. Double-dips happen when there is a policy mistake, which we do not expect. –Ethan Harris, Bank of America Merrill Lynch
Many observers believe that the U.S. economy will soon weaken substantially in the wake of the turmoil in Europe. Some may even go so far as to chalk up today’s data as the firstfruits of that prospect. I doubt that I can talk anyone off of that position so I will not try, especially after today’s data. I firmly believe that the economy is expanding nicely and today represents no more than a bump in the road, but the skeptics will be heartened. –Stephen Stanley, Pierpoint Securities
The May employment report was disappointing following the strong gains in March and April. The large top-line number was almost entirely due to hiring for the Census; many of those jobs will disappear over the next couple of months. The labor market gained momentum in March and April. The strength of the March numbers was due to some extent to a rebound in activity following the harsh winter. April’s gains seemed to usher in sturdier labor market conditions but may have overstated the market’s strength. May’s numbers are a reminder of the depth and severity of the labor-market decline of the past two years and of lingering obstacles to growth. –Sophia Koropeckyj, Moody’s
We were skeptical of the 218,000 reported for private payrolls in April and we are equally skeptical of this report; the truth is probably in between. –Ian Shepherdson, High Frequency Economics

And from Bespoke Investment Group:
A few days ago we highlighted how economists were expecting this to be the best jobs report since 1983 (even though more than half were expected to come from temporary census jobs).  The consensus economist estimate of 536,000 was laughed at this morning by the actual number that came in at +431,000.  The real disappointment didn't come from the overall miss, but from the very weak private sector jobs number.  Census workers accounted for 411,000 of the 431,000 jobs added!  That's how a reading of +431k gets labeled as awful, and rightfully so.
From our Economic Indicator Database available to Premium Plus subscribers, below we highlight the biggest misses versus expectations in jobs reports since 1998.  When comparing actual versus estimates, today's miss of 105,000 jobs ranks as the 21st worst.
The table of worst jobs reports also highlights the change in the S&P 500 on the day of the report.  Today's current decline of 2.08% would be the second worst of the days where jobs missed by 100,000 or more.  The average change for the S&P 500 on all 100k miss days has actually been positive at 0.23%, so today's action is an outlier even though it's counterintuitive.

We also sorted our Economic Indicator Database for the worst market reactions to the non-farm payrolls report since 1998.  At its current intraday level, the S&P 500's decline of 2.08% would rank as the 11th worst.  The worst day for the S&P 500 on a jobs report came two years ago on June 6th, 2008 when the index declined 3.09%.  The jobs report that day came in at -49,000 versus an estimate of -60,000.