A Slow, Painful Recovery

by: Wall Street Strategies

By Carlos Guillen

Clearly, today's jobs data created disappointment and, in many ways, generated doubt about the degree of its validity. One thing appear to be more certain now, and that is that a recovery of the world's biggest economy will be prolonged, keeping many in distress for quite some time.

The April jobs data certainly served to dampen the spirits of investors that were hoping to see a continuation of the jobs gained early in the year. Well ... not going to happen. According to the latest data from the Department of Labor, the unemployment rate declined in April to 8.1 percent from the 8.2 percent achieved in March, landing lower than the Street's consensus of 8.2 percent and representing the lowest level since February 2009. However, while this drop in the unemployment rate would normally be considered to be encouraging, the manner in which it was achieved was certainly discouraging as many people simply dropped out of the work force. Also discouraging was that non-farm payroll employment increased by much less than expected.

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So far, the trend in the unemployment rate is still favorable, but the April result had one major caveat that is worth noting. While the number of people unemployed was reduced by 173,000, the reason for the drop was simply because most of the unemployed chose to give up looking for work and moved out of the labor force, allowing for a rather fictitious improvement in the unemployment rate. Also intriguing was that the level of employment dropped by 169,000; this means that a total of 342,000 people simply moved out of the work force.

Perhaps the most surprising aspect of the report was that the change in nonfarm payroll jobs was much worse than expected as it showed an increase of 115,000 jobs while the Street's consensus called for a gain of 162,000. This nonfarm payroll figure also came in a bit below ADP's nonfarm jobs number posted last Wednesday that showed an increase of 119,000 jobs. It is worth noting, however, that while there have be some fluctuations, the economy has been able to consistently add jobs in each of the last 19 months. Moreover, the warmer that seasonal weather may have also contributed the less than expected result as many individuals appear to have found employment ahead of time, giving the prior couple of months' data a boost but starving out the momentum in April. In fact, nonfarm employment in February and March were revised higher by a total of 53,000 jobs

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The net effect of the jobs data has certainly been negative today as reflected by the sharp downturn in equity markets. Ironically, a worse nonfarm figure (below 100,000) would have actually pushed markets higher today as it would have significantly increased the probability of the Fed putting a quantitative easy program into effect, but obviously this was not the case. So, let the slow painful recovery continue.