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Don't Be Fooled By The Jobs Report


  • This is a weekly series focused on analyzing the previous week’s economic data releases.
  • The objective is to concentrate on leading indicators of economic activity to determine whether the economy is strengthening or weakening, and if the rate of inflation is increasing or decreasing.
  • This week we examine the ISM and PMI Services and Manufacturing Indices, and the jobs report for May.
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PMI and ISM Services Indices

Markit’s US Service Index may have bottomed, but I think it is a stretch to describe the bounce in activity as V-shaped. The rate of contraction in business activity eased in May, as states reopened their economies, with the index rising from 26.7 to 37.5. The decline in output was primarily due to “weak client demand.” As a result, companies reduced headcount at nearly the same rate that they did in April. The degree of pessimism about the outlook moderated, as hopes rose that the worst is behind us. Yet social distancing measures are clearly taking a toll on business revenues, which is forcing companies to look for ways to cut costs. This will make it very difficult to see substantial employment gains until the coronavirus is contained and there is a treatment or vaccine that gives consumers confidence.

The ISM Non-Manufacturing Index contracted for a second month, rising from 41.8% in April to 45.4% in May. Again, no V-shape here. The business activity and new orders sub-indices realized the greatest improvement, but employment barely budged. The supplier deliveries index fell 11.3 points to 67, which is a positive, because it means that delivery times are speeding up as supply chain constraints ease somewhat. Still, this is nothing more than a dead cat bounce so far for the service sector.

PMI and ISM Manufacturing Indices

Markit’s Manufacturing PMI saw little improvement in May with the index edging up to 39.8 from 36.1. A continued weakening in demand and decline in new orders led to further declines in employment. Lower sales, temporary shutdowns and the inability to operate at full capacity because of new safety regulations will weigh on manufacturing in the months ahead. While the worst may behind us, this report still reflects the worst rate of business activity we

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Lawrence Fuller profile picture

Lawrence is the publisher of The Portfolio Architect. He has been managing portfolios for individual investors for 30 years, starting his career as a Financial Consultant in 1993 with Merrill Lynch and working in the same capacity for several other Wall Street firms before realizing his long-term goal of complete independence when he founded Fuller Asset Management. In addition to writing for Seeking Alpha, he is also a Leader on the new fintech platform at Follow.co.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Lawrence Fuller is the Managing Director of Fuller Asset Management, a Registered Investment Adviser. This post is for informational purposes only. There are risks involved with investing including loss of principal. Lawrence Fuller makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made by him or Fuller Asset Management. There is no guarantee that the goals of the strategies discussed by will be met. Information or opinions expressed may change without notice, and should not be considered recommendations to buy or sell any particular security.

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Comments (62)

jprizzuto profile picture
things that make say - huh?
wrt to the May employment report...

" there will likely be a second wave of job losses in the months ahead, which isn’t being accounted for today "
Say what @jprizzuto ?
jprizzuto profile picture
having problems with reason @kimbillro ... why would 'todays' payrolls report account for a second wave of job losses that may or may not happen in the future?
I see what you mean @jprizzuto .
thank you for the excellent analysis. Regarding the recent jobs report, it was odd how the day prior the ADP was terrible but how the Futures market was taking off prior the FEDs report the morning of. I assume a bright man like yourself not into deep state conspiracy theories but it just smells . any thoughts on this..... blessings and thank you
"I don't mind you calling me a conspiracy theorist if you don't mind me calling you a coincidence theorist." - unknown

sts66 profile picture
They've made the same error for 3 straight months - since they know it's wrong, why the hell aren't they just releasing the correct number to start with instead of adding the caveat to the bottom of the unemployment numbers releases? This is BS - the BLS swears up and down and sideways that politics aren't coming into play, but who actually buys that? (excluding the stock market, which clearly does believe the fake numbers are real)


"When the U.S. government’s official jobs report for May came out on Friday, it included a note at the bottom saying there had been a major “error” indicating that the unemployment rate likely should be higher than the widely reported 13.3 percent rate.

The special note said that if this “misclassification error” had not occurred, the “overall unemployment rate would have been about 3 percentage points higher than reported,” meaning the unemployment rate would be about 16.3 percent for May."
"The V shown above to report last month’s job gains looks a lot smaller when viewed in the context of the total jobs we have in the economy today. The unemployment rate was reported to have declined from 14.7% to 13.3%, but that number is flawed. The BLS classified three million workers as “absent from work,” instead of laid off. This mistake means that the unemployment rate rose to 16%. Despite the correction being made the same day, it was completely ignored."

This paragraph is wrong. The BLS explains it all on their website. See www.bls.gov/... and www.bls.gov/...
for the details. If the "absent from work adjustment" was made for both April and May, the May unemployment rate still fell, from 19.1% to 16%.
You don't say @Robin Heiderscheit .
Neanderthal_Philosopher profile picture
Thank you, author, for your article. 

I know you are writing from a perspective of intending to act as a counter-indicator of the market since March 2020, and, so, I am extremely happy to continue to read your articles — in jest! 🙏🙂

I have been 3 XXX times long since that time and your articles have provided hours of reading enjoyment for my son and I, during this time.
The author doesn't see the $5 trillion on the sidelines ready to buy this stock market @Neanderthal_Philosopher .
Lawrence Fuller profile picture
@Neanderthal_Philosopher I don't write with any intentions, other than to interpret the data. I was a big buyer of stocks in March, but I've peeled off all the names I bought back then to take profits and now i'm leaning the other way. Glad the articles help you do whatever it is you do.
Buying in March was a good move @Lawrence Fuller .
TreDrier profile picture
Just read where 25,000 small businesses are expected go under this year. What's happening in the stock market though is not widespread price surging. There's a select set of companies driving the Dow and S&P higher. Retail apparel, airlines (although they recently bounced back a bit), financials, restaurants, etc. They trail the overall upward trend. I won't try to predict the future since there's already thousands of analysts who are doing a terrible job of it and I really have no ideal what the near term future holds.
I agree with your assessment. A good amount of businesses will go under, and the remaining businesses won't hire back workers. At some point, this extra $600 per week won't be continued by Congress and unemployed workers will only have straight unemployment. People will worry about their financial situation and will reduce spending. In other words, a typical recession.

Yet, so many bulls think that the market will go up forever. The market dropped 55% during the Great Financial Crisis, but bulls conveniently forget that. The market right now is the definition of irrational exuberance. I predict that reality will set in shortly and we will crash again in August or September.
Lawrence Fuller profile picture
@Nicomedes Agreed, the Fed liquidity will limit the downside, but there will be a reality check when Q2 earnings are reported one by one, along with the erosions of fiscal stimulus and continued spread of the virus, which will limit the spending by older demographic.

Its pretty simple, but retail is following the market like lambs over a cliff.
sts66 profile picture
The extra $600/wk benefits set to expire on July 31 - the House passed an extension but I think McConnell said no way are we passing that bill - that's when the sh*t will hit the fan.
Diesel profile picture
Yeah but the economy will be ok by 2023 and that's what the stock market is pricing in right now.
Wiekierc profile picture
@Diesel Investments

2023, 2032, 2233..."Whatever it takes".
$6 trillion on the sideline will propel the stock market to the moon @Wiekierc .
Ponti_fication profile picture
@kimbillro :

I thought I made it clear = $6 trillion is miniscule relative to the $40 trillion market size. What's up ?
jack kreg profile picture
I am not fooled by 3 million new jobs!
Job hiring will only accelerate as the sick, blue states come out of lock down, like CA and NY.
Looking for single digit unemploy way before Trump re-election win in the fall!
The NASDAQ at all time highs and they can't see past their short noses @ziyaismayilov .
I do not agree at all with your analysis.
1. its in line with other nations recovery
2. You have not taken into account the vast food service industry
3. Travel and entertainment are like a loaded spring
4. May we were still under lock down orders... June for the most part has been lifted
TreDrier profile picture
What??? Fast food is a very small part of the overall economy. Hospitals have been crushed as have retail and travel and entertainment. There is no rebound to normalcy in any of those industries for the next 6 to 12 months.
And that's IF we get a treatment or vaccine for the virus. They are a big part of the overall economy.
@sailorjack2019 is correct @TreDrier , this stock market is going higher with $6 trillion on the sidelines.
TDune75 profile picture
@kimbillro , can you please provide your data source for the $6T estimate? What do you mean by "on the sidelines"? Where is the $6T hiding: treasury bills, savings accounts, banking reserves, gold/GSM's? Who owns the $6T?
90% unemployment was great news for the Weimar Germany stock market.
That was then this is now @Lotsdawg . Germany didn't have $6 trillion on the sidelines to by stocks.
joeliebig profile picture
Canada jobs report seems to confirm ours ... so what's with that?
AZalewski profile picture
"... the millions of self-employed small business owners who did not receive funds from the Payroll Protection Program, and who are not yet receiving enhanced unemployment benefits..."

Nice to be mentioned! Yup, wrapping up a contract that would have extended if not for COVID. We don't qualify for PPP. Yet the back half and belt tightening will give us into Q12021 to secure a new client/contract. Not considering unemployment benefits at this time. So my two person outfit will be paying wages until OpEx is gone. Still upbeat though.
Lawrence Fuller profile picture
@AZalewski Sorry to hear that!! I have friends in the same boat, and its BS! Plenty of companies that don't need the money reaping the benefits leaving millions of others with nothing.
TreDrier profile picture
Great to see you hanging in there and persevering. My small business went through 2 recessions and we came out stronger in both cases but it wasn't easy. We were acquired 5 years ago.
09 Jun. 2020
Huge jobs number coming up...some are estimating 10,000,000 new jobs in June
From the looks of the airline and cruise line sector everyone will be taking holiday.
Who is saying this? I would like to read an article if possible
TreDrier profile picture
That's NOT going to happen. Not a chance.
The stock market has validated the trend of the jobs report.
Lawrence Fuller profile picture
@kimbillro That's a pretty funny comment, are you drinking? Lost 20M one month and then gains 2M the next, which was really a loss of another 1M if properly counted. That's a downtrend.
Or the 2M is the beginning of a new uptrend @Lawrence Fuller .
TreDrier profile picture
The question is how steep is the upward trend.
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