Unemployment Data Less Upbeat than It Appears - Deutsche Bank

by: John Jansen

Here is a piece written by Deutsche Bank economists on the labor report this morning. They have some interesting and instructive observations on the hours worked section of the report which I think has been glossed over elsewhere in the media (if this be media). I publish with the permission of Deutsche Bank and their thoughts begin immediately following the colon:

The -345k decline in May nonfarm payrolls was significantly better than expected, and the prior two months were revised higher by 82k. However, the details of the report were not anywhere near as upbeat as the headline suggests. In particular, the weakness in hours and earnings are reason for concern. The length of the workweek declined by 0.1 hour to 33.1 hours, which is the aggregate hour equivalent of an additional loss of about 350k jobs. More importantly, the manufacturing workweek also declined (39.3 hrs vs. 39.5 previously) - this is a negative sign for inventory restocking in the current quarter, because inventory rebuilds have historically been accompanied by a rise in manufacturing hours worked. Average hourly earnings rose 0.1% in the month, lowering the 3- and 6-month rates of change to 1.7% and 2.2%, respectively. In short, wages are rolling over and this is likely to continue in light of another large jump in the unemployment rate to 9.4% from 8.9% previously. The unemployment rate is now at a 25-year high.