Updated: 05-Jun-09 09:26 ET

May Nonfarm Payrolls

Updated: 05-Jun-09 09:26 ET

Highlights

• "Only" 345K nonfarm payroll jobs were lost during the month of May.  That was indeed much better than the consensus estimate of -520K.  Moreover, the April nonfarm payrolls data was revised up to show a decline of -504 positions versus an originally reported -539K.
• The other headline that jumps out is the unemployment rate, which spiked to 9.4% from 8.9% and is at its highest level since 1983.  The big uptick is owed in part to an increase in the civilian labor force, meaning there were more people looking for jobs.  That was read in counter-intuitive fashion, though, as a sign that it reflects increasing confidence in the economic recovery.
• Hourly earnings increased 0.1% as expected, yet the average workweek dipped to 33.1 hours from 33.2 hours, which isn't a great portent for a pickup in hiring.  By the same token, the -0.2% decline in the manufacturing workweek isn't a great portent for a pickup in industrial production.
• By sector, job losses were seen in every category with the exception of education and health services (+44K) and leisure and hospitality (+3K).  The manufacturing sector saw 156K job losses in May.

Key Factors

• The market's initial reaction to the May data was positive, which isn't surprising since traders typically react to cursory headlines.  This report, however, doesn't contain good economic news.
• From the drop in the workweek, which suggests hiring isn't likely to pick up soon, to the unemployment rate, which left the 2009 average rate at 8.48% and above the 8.1% average factored in the White House deficit projection for FY09, to the increased rates of long-term unemployment and increased rates of underemployment, the May report doesn't set a good stage for a meaningful pickup in consumer spending.

Big Picture

• Employment conditions have worsened significantly in recent months.  Through August 2008, payroll declines were moderate, and not at recessionary levels.  The September and October declines were much larger and established a new trend.  Employment conditions are not likely to improve for quite a few months, particularly as employment picks up only after an increase in overall demand.