Non-Farm Payroll Employment – Sizable Downshift; CAI 1.0% for May

It’s a social disaster.

We are over 2 years past the trough

Monetary policy at best maybe kept it from being worse but most likely is a net drag due to the various income interest channels

And all the talk is about tightening fiscal

And no energy policy


Goldman on NFP

Actual: +54,000 mom
Previous: +232,000 mom
Consensus: +165,000
Released: 03 June 2011 at 08:30 (New York time)

Sizable Downshift; CAI 1.0% for May
BOTTOM LINE: Employment Report broadly worse than expected, and weakness not obviously related to supply chain problems in auto sector. Income related news (weekly hours and earnings) most positive aspect of report. Our Current Activity Indicator shows preliminary growth of 1.0% for May.

Nonfarm payrolls -10 (5, -2)
Unemployment rate -10 (5, -2)

Nonfarm payrolls 54k in May (mom), vs. GS +100k, median forecast +165k.
Unemployment rate 9.1% in May, vs. GS 8.9%, median forecast 8.9%.
Average hourly earnings +0.3% in May (mom), vs. GS +0.2%, median forecast +0.2%.

1. Nonfarm payroll employment increased by just 54k in May, significantly less than expected (although the surprise was smaller relative to forecasts which were recently updated; the post-ADP median was +130k). Weakness was concentrated in manufacturing (-5k vs. +24k in April), retail trade (-9k vs. +64k) and leisure/hospitality (-6k vs. +32k). In our view, only about 15-20k of the downshift in employment growth is attributable to supply-chain problems in the auto sector (adding together changes in job growth for manufacturing firms and vehicle dealers). Government employment fell by 29k, reflect another month of losses for state and local government workers. Total private employment gained by 83k after increasing by 251k in April. Job growth over the previous month was revised down a net 39k.

2. Secondary indicators in the establishment survey were more favorable. First, the average workweek was 34.4 in May, one tenth higher than expected, reflecting upward revisions to previous months. The three-month annualized growth in aggregate hours worked-total labor input into the economy-was a healthy 3.9%. Second, average hourly earnings increased by 0.3% mom in May, more than expected (although downward revisions meant the year-on-year rate was weaker). Together these variables imply that nominal household income growth has been reasonably good of late, although the increase in energy prices has hurt income in real terms.

3. The unemployment rate rose by one tenth to 9.1% in May, and is now up three tenths from its recovery low in March. Household employment increased by 105k in May (after falling by 190k in April), but labor force growth was stronger. The employment-to-population ratio held at 58.4%. The U-6 measure-which captures other types of labor underutilization-fell by one tenth to 15.8%.

4. After the recent run of weaker-than-expected data, our Current Activity Indicator (CAI) now stands at just 1.0% for May, down from 1.6% in April and 4.2% in March.