Analysis: May 2012 BLS Jobs Report

The US unemployment rate decreased to 8.1%; the broader underutilization rate held steady at 14.5%.
• A net +115k jobs were created in April, far below the +170k consensus estimate…yet another sign the US economy is not out of the woods yet. Some positives to consider: February and March payrolls were revised upward (a net +52k) and the unemployment rate is at its lowest level in 3 years.
• The total number of unemployed (12.5M) and long-term unemployed – those out of work for 6+ months (5.1M or 41.3%), remained flat. Note: Over the year, the long-term unemployment has decreased by -759k.
• The labor participation rate decreased to 63.6% (from 63.8%), a direct result of over 350k workers leaving the labor force. Give me something to believe in…


While the jobs report did little to raise hopes of averting a third consecutive summer of sluggish growth, there were several bright spots:
• The resiliency of the US consumer was evident in several sectors: retail (+29k), food and drinking places (+20k) and manufacturing (+16k); other positives: professional and business services (+62k; including +21k in temp help services), health care (+19k) and educational services (+4k).
• Among the laggards, transportation and warehousing (-17k), government (-15k) and construction (-2k) all saw decreases.
• One interesting fact for your next cocktail party: since February 2010, the private sector has created nearly 4.3M jobs; in contrast, the public sector has pared over 1M jobs since May 2010.


What’s in store? Key watch items…
On the bearish side:
• Another bubble? According to Smart Money, US stock are now more worth more than GDP. When this phenomenon occurred in the past, the following year resulted in the 2000 dotcom and 2006 housing bubbles. While many analysts believe there is little probability of a similar scenario this time around (as many companies are less dependent on the US economy (e.g., S&P 500 collects 1/3 of revenues from overseas)), it's worth monitoring.
• Long term outlook. The Fed's recent outlook on the economy painted a glass half empty scenario. On the one hand, they expect the US economy to grow between 2.4 - 2.9% this year (vs. 1.7% last year). On the other hand, they expect 2013 and 2014 to be considerably weak due to persistent strains within global financial markets, high energy prices, the depressed housing market and a looming "fiscal cliff" (i.e., Bush tax cuts, payroll tax cut and extended unemployment benefits set to expire at the end of this year).
On the bullish side:
• Productivity. US productivity decreased at 0.5% annual rate. This is notable because businesses are finding it harder to squeeze more output from their existing workforce. Subsequently, this trend along with the $2T in cash in company coffers may drive increased hiring in the coming months.
• China. Recent figures on manufacturing within the #2 global economy painted a glass half full scenario. While the Purchasing Manager Index showed a sixth straight month of contraction, the larger trend pointed to stabilizing conditions. Economists believe Chinese economic growth will bottom out in Q2 and re-acclerate to 8.5% in the second half of 2012.