Market Matters
U.S. treasuries and mortgage rates have seen yields increase this week, as surprises in the May jobs number have broken the trading range we have seen for the past two months of 0.54%-0.78% on the 10-year. Market sentiment has flipped to risk on as the 10-year 0.927%, and the 10-year potentially looking at 1%. With the beat on the jobs report so large, especially when compared to the millions of jobless claims each week, there must be some questioning of the accuracy of the numbers. The market will be keeping an eye on the incoming data to see if it confirms the pickup in jobs and potentially the economy or if the report is a one-off.
May Jobs Report
Total nonfarm payrolls for May surprisingly increased by +2.509mln, beating expectations of losses in the -7.5 to -8mln range. Private payrolls increased by +3.1mln, while government payrolls fell by -585k. Within different sectors of the report, we see the leisure and hospitality sector rebounding by +1.24mln, with construction strong at +464k new jobs, retail adding +368k, and manufacturing improving by +225k. Within the household report, the unemployment rate fell from 14.7% to 13.3% versus expectations of a rise to 19% given the data from the jobless claims over the past several weeks. The number of employed people rose +3.839mln, while the number of unemployed fell by -2.093mln. The number of persons participating in the labor market rose +1.746mln, which brings the participation rate from 60.2% up to 60.8%. According to the BLS, “Household survey interviewers were instructed to classify employed persons absent from work due to coronavirus-related business closures as unemployed on temporary layoff. However, it is apparent that not all such workers were so classified. BLS and the Census Bureau are investigating why this misclassification error continues to occur and are taking additional steps to address the issue. ... If the workers who were recorded as employed but absent from work due to "other reasons" (over and above the number absent for other reasons in a typical May) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher." Finally, average hourly earnings fell by -1% versus expectations of a +1% increase, while the average workweek was up .5 to 34.7 versus consensus of 34.3 hours.
Initial Jobless Claims
Initial Jobless Claims for the week ending May 30th declined by -249k to 1.877mln, down from the prior week’s upwardly revised print of 2.126mln. This is now the lowest total in 11 weeks and has set the lowest 4-week moving average in 10 weeks at 2.284mln claims. This week’s number is now down 4.99mln from the peak of 6.867mln reach during the March 29th week. Continuing claims, which lag by a week, rose +649k to 21.487mln, up from the prior week’s downwardly revised print of 20.838mln. Looking ahead to the jobs report for May, headline payrolls are expected to drop in the neighborhood of -9mln, with the unemployment rate rising in a range from 18-20%.
ADP Employment Report
The ADP Employment Report for May showed a loss of -2.76mln private payrolls. While not quite as horrible as market expectations of as much as -9mln, this is still a very weak number overall. Job losses were seen more in larger businesses, which reported -1.6mln losses, while midsize companies lost -722k, and small firms declined by -435k. At the sector level, trade, transportation and utilities led with a loss of -826k, professional and business services dropped -250, financial activities were off -196k, health services lost -168k, leisure and hospitality dropped by -105k, and the “other activities” category reported a decline of -307k. Only two areas reported gains, those being education at +166k, and administrative and support services at +40k. On the goods-producing side, manufacturing saw a big decline of -719k, and that was accompanied by a drop of -52k in mining and natural resources, and a loss of -22k in construction.
ISM Non-Manufacturing Index
The ISM Non-Manufacturing index rose +3.6 points to 45.4 in May, up from the prior 41.8 in April (April was an 11-year low and the first contraction since December 2009). The survey’s measure of new orders for the services industry increased to a reading of 41.9 in May from a prior 32.9 in April, which was the weakest since the series started in 1997. The survey’s index of services industry employment edged up to 31.8 last month from 30.0 in April, which was the lowest since 1997 as well.
