On Friday, the US Department of Labor said non-farm payroll employment rose less than expected in June.
According to the department’s Bureau of Labor Statistics, 18,000 new jobs were created in June, well below consensus estimates of more than 100,000 and essentially unchanged from May.
In addition, the department said the unemployment rate came in at a higher-than-expected 9.2%, also essentially unchanged from 9.1% in May and the highest level this year. Other details of the report were also disappointing. The fact that the labor force participation rate continues to decline and is now at its lowest level since 1984 was also particularly surprising.
Like last month’s similar figures, the new non-farm payroll report provides even more data points hammering home the fact that this recovery is unusual. More than two years into the recovery, job creation remains anemic, the unemployment rate high and the number of people engaged in the labor force still dropping.
Why is this recovery different? Unlike a typical recession, the latest downturn was not caused by an overheating economy and tight monetary policy but instead by the bursting of a credit bubble. And as typically happens after such events, the economy and the labor market are slow to recover.
Again, while we do not believe that the US economy is heading back into a recession, we do expect that the recovery, particularly in jobs, will be slow and continue to disappoint investors.
So assuming a slow recovery, what are the investment implications? The weak labor market is just one of many headwinds facing the US consumer. In fact, we don’t expect consumer spending to pick up materially over the next six to 12 months. Such recent weakness in consumption continues to be a negative for companies or ETFs levered to US consumption and particularly for US retailers, which we’ll share more about in a future post.
In addition, as we pointed out last month, recent non-farm payroll figures are also signs that inflation is likely not going to be a serious threat this year or arguably next year.
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