By Carlos Guillen
The highly awaited government jobs data arrived on Friday and it came in just right, enough to lift investors' enthusiasm toward equities as the numbers showed that the employment backdrop was peachy enough to overcome the effects of higher taxes and federal spending reductions, but not rosy enough to cause the Fed to scale back its $85-billion-a-month bond-buying program, which has been supporting equity prices for some time now. Of course, the fact that the unemployment rate ticked higher is certainly nothing to be cheery about, but had it risen much higher than expected investors would have been spooked and stocks markets would have been trading deep in the red.
According to the latest data from the Department of Labor, the unemployment rate in April was 7.6 percent, landing above the Street's consensus of 7.5 percent and ticking up from the 7.5 percent posted for the prior month. Clearly, while an increasing unemployment rate is not encouraging for the most part, the manner in which the rate increased was somewhat soothing. The household survey showed that while those unemployed increased by 101,000, those employed climbed by 319,000; moreover, those not in the labor force declined by 231,000, all while the overall population increased by 189,000. In essence, the jobs market was able to employ a good chunk of those considered not in the labor force as well as a good portion of the incremental population. We should also note that the rise in employment was not influenced by part-time workers; in fact, individuals working part-time for economic reasons declined by 12,000 in May.
Quite interestingly, as more people become encouraged to join the work force, the unemployment rate may continue to tick higher. In the first quarter of this year 1.13 million people move out of the labor force, and so far into the second quarter 262,000 have rejoined the work force, which means that there is a substantial number of individuals that can still jump back into the labor market, and if there are not enough jobs to keep up with the demand we can certainly expect to see the unemployment rate move higher.
The even more encouraging and surprising aspect of the jobs data was that non-farm payroll employment in May (derived from the establishment survey) increased by much more than expected. The report showed that the increase in non-farm payrolls was 175,000 while the Street's consensus called for a gain of 159,000, which by the way was a much larger gain than that achieved in April when non-farm payrolls increased by 149,000. The non-farm private payroll gains were 178,000, also landing above economists' forecast of 175,000. This result was also higher than that presented by ADP this past Wednesday, which landed worse than Street estimates. According to ADP, non-farm private sector jobs increased during May by 135,000, worse than economists' average forecast calling for a 157,000 increase. The fact that the ADP figure missed expectations by such a large margin had many on the Street worried that the Department of Labor would also report a worse than expected result, but thankfully that was not the case.
In all, the May unemployment data was just right. While the unemployment rate did increase, it was driven by encouraged workers moving into the labor force and by population growth, and for the most part most those people were able to get jobs. Moreover, employers were able to take on more workers than economists predicted, contradicting data from ADP that showed a less than expected gain. However, it is likely that as more people become encouraged to join the work force, we can certainly expect to see the unemployment rate continuing to tick higher.