Knowledge Center Archive
Podcast: May 2012 Payroll Report
Investors took to the battlefield in May across multiple fronts, with the labor market being front and center. Drama raged week after week due to initial jobless claims data reversing course and moving higher. May’s ADP National Employment Report showed the creation of 133,000 jobs—welcome news, but still short of expectations.
Welcome, my name is Sean Simko. I am Managing Director of SEI Fixed Income Portfolio Management. Today’s commentary focuses on the release of May’s employment data, including the nonfarm payroll number and the market’s initial reaction.
Investors took to the battlefield in May across multiple fronts, with the labor market being front and center. They certainly had to dig in their heels, as drama raged week after week due to initial jobless claims data reversing course and moving higher. Claims came in at 383,000 for the last week of May, and the average year-to-date number is 373,000.
May’s ADP National Employment Report showed the creation of 133,000 jobs. While this data was welcomed by investors, it was still short of expectations. The manufacturing and construction sectors posted decreases of 2,000 and 1,000 jobs, respectively.
The nonfarm payroll report, which contained the month’s most eagerly anticipated data, provided further evidence that the labor market is slowing. Nonfarm payrolls increased by only 69,000 in May, with a downward revision of 38,000 to last month’s number. Private payrolls increased by 82,000, suggesting that corporations are curbing their hiring. The construction sector cut 28,000 jobs, the government sector shed 13,000 jobs and the leisure and hospitality sector lost 9,000 jobs. The U.S. unemployment rate ticked higher to 8.2% from 8.1%.
The disappointing data fueled the Treasury market’s rally. May’s data could strike a serious blow to confidence and reignite discussions about additional accommodation from the U.S. Federal Reserve. However, it is still too early to consider an additional move on the Fed’s part to be a done deal. The 10-year Treasury moved below 1.50% in response to the disappointing numbers, stopping at 1.45% once the data was digested. The two-year/10-year curve came in at 1.20%. Anchored by the Fed, the two-year held firm at 24 basis points, and the 30-year traded to 2.52%.
The labor market is feeling the effects of slowing economic growth. As a result, the hope investors held for a strong first half of the year followed by an even stronger second half is beginning to wane. We believe that the current pace of job creation will make it difficult for the unemployment rate to move significantly. Job growth must exceed 200,000 jobs per month in order to make a meaningful impact. May’s economic data took another step back by once again coming in on the softer side. The ugly labor data was a reminder that growth within the labor market is by no means guaranteed.
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