Payrolls: Bleak with 1 Silver Lining

Highlights

• Most of the key headlines of the survey were weak
• Payrolls up only 69k with net revisions of -49k (April now +77k not 115k)
• Unemployment rate up from 8.1% to 8.2% (labor force up 622k and household survey up 422k)
• Average hourly earnings up 0.1% and index of aggregate hours -0.2%
• Median duration of unemployment up from 19.4 weeks to 20.1 weeks and U6 unemployment rate up from 14.5% to 14.8%
• The silver lining is that the Diffusion Index (# of industries adding jobs less those cutting jobs, indexed on a 0-100 scale) rose from 56 to 59.4
• Downside shifts were heavily concentrated in 3 sectors (Construction -5k to -28k; Retail 27k to 2k; and Business services 37k to -1k)
• Construction and retail (which includes leisure and hospitality) likely reflect the weather payback that Bernanke has highlighted; business services cuts likely reflect the late nature of tax season this year and some of those layoffs may not have taken place until May.

Conclusion

• The diffusion index improvement implies the underlying state of the labor market is somewhat better than the headline; probably in the 125-150k range
• Purely based on the economic data, additional Fed easing is unlikely
• But the worsening of financial conditions via Europe have increased the odds of a continuation of Twist (in its current form) for at least 2-3mths