May Labor Report


This morning the U.S. Labor Department released the May employment report.

  • May non-farm payrolls rose +175,000, beating the consensus estimate of +163,000.
  • May private payrolls rose +178,000, slightly better than the consensus estimate for +175,000.
  • The unemployment rate rose to 7.6% from 7.5%.
  • April non-farm payrolls were revised lower from +165,000 to +149,000.
  • April private payrolls were revised lower from +176,000 to +157,000.
  • Average hourly earnings rose to $23.89 from $23.88 last month.
  • May manufacturing jobs fell (-8,000), below consensus estimates for +4,000.
  • April manufacturing jobs were revised down, from unchanged to (-9,000).
  • The underemployment rate fell to 13.8% from 13.9% last month.
  • The labor force participation rate rose from 63.3 to 63.4.


This morning’s much anticipated labor report should end the misguided premise for FOMC tapering at its upcoming June 19 meeting. U.S. manufacturing remains weak and a new, challenging labor dynamic might finally be emerging.

Over the past few months we have highlighted the potential for the decline in the U.S. labor force participation rate to stabilize. In the May payroll report that dynamic (Figure 1.1) finally presents itself. This month’s rise in the unemployment rate due to a rise in the labor force participation confirms my expectation that the path to a 6.5% unemployment rate will become much more difficult. As the perception of an improving economy intensifies, more discouraged workers will return to the labor force, reversing some of the “artificial” decline in the U.S. unemployment rate posted year to date.

In the wake of this morning’s report, confusion still reigns. I still expect June to be a frustrating month for risk assets. Outflows from risk assets in the last month of a calendar quarter generally do not return during that same month. Prudent money managers have the tendency to wait until the approaching new quarter to mark their return.

Technically, the range for the 10-year U.S. Treasury (Figure 1.2) has now lifted from 1.75%-2.00% to 2.00%-2.25%. That will impact the trading for bond-like assets. The S&P 500® Index (SPX) did hold, 1598.23 low, our identified major support level at 1597.35 yesterday. Sustained trade for the SPX (Figure 1.3) above 1597.35 suggests sideways trading between 1600 and 1660 until the catalyst of a new quarter and earnings season presents itself in July.

Figure 1.1 U.S. Unemployment Rate and U.S. Labor Force Participation Rate
Terranova 6-7 1
Terranova 6-7 2
Source: Bloomberg

Figure 1.2 U.S. U.S. Treasury Year to Date
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Source: Bloomberg

Figure 1.3 S&P 500 Index (SPX) Year to Date
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Source: Bloomberg

Past performance is not a guarantee of future results.

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