The Table Setter: U.S. Jobs Report
This morning the Labor Department delivered the following disappointing payroll report for the month of May:
- May Nonfarm Payrolls rose only 69,000, below the +150,000 estimate
- May Private Payrolls rose only 82,000, below the +160,000 estimate
- May Manufacturing Payrolls rose 12,000, below the +15,000 estimate
- Unemployment Rate rose to 8.2% from 8.1% last month
- Underemployment Rate rose to 14.8% from 14.5% last month
- Participation Rate rose to 63.8% from 63.6% last month
- Change in Household Employment was +422,000 after last month’s -169,000
- Average Weekly Hours fell to 34.4 from last month’s 34.5
- April Nonfarm Payrolls were revised lower to +77,000 from +115,000
- April Private Payrolls were revised lower to +87,000 from +130,000
COMMENTARY: Consistent with the labor slowdown that began on Friday, April 6, we now have three consecutive soft labor reports. These are the fewest jobs created in 12 months. This month’s +69,000 new jobs figure is also well below the 18-month average of +153,000.
I have three expectations as a result of today’s labor report:
1. The presidential election in November is a toss-up. Investors should not craft portfolios in anticipation of a particular candidate winning. That remains unknown. My Q1 expectation that the economic data aligned with a second term for President Obama has been neutralized by the labor reports of the past three months.
2. Uncertainty will remain in the markets for the remainder of Q2. I do not expect the “refresh” button to be pressed on Q1’s appreciation.
3. The odds of modest, unconventional monetary easing at either the June 20 or July 31 FOMC meetings has risen. However, I do not expect anything along the magnitude we saw with QE1 or QE2. Therefore, do not dust off the reflation playbooks of prior years.
MARKET STRATEGY: The S&P 500® Index (SPX) is flirting with its first close below the 200-day moving average since December 30, 2011. A sustained selloff (multiple closes) below the 200-day positions the SPX to next challenge unchanged for 2012 at 1257.60.
- For those seeking highly defensive positioning, utilities remain my favorite defensive play.
- Taxable fixed income continues to remain my lone overweight as it has since my Friday, April 6 commentary that suggested this strategy.
Keep an eye on the technology, financials and consumer discretionary sectors to telegraph the depth of a further correction or reversal in momentum back higher. These are leading indicators. On a more tactical basis, the combination of oil, JP Morgan (JPM), Apple (AAPL), and the Russell 200® Index (RTY) finding its trough signals to me the refresh button is being pressed. Until that happens the correction continues.
U.S. Nonfarm Payrolls, Prior 18 months
S&P 500 Index (SPX), June 2, 2011 to June 1, 2012