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The May Jobs Report: A Mythical Bull

June 5th, 2010


06.05.2010
03.18.2011 updated broken links
04.04.2012 updated broken links
06.27.2012 updated broken links

The May Jobs Report: A Mythical Bull

A look from fiction to fact.
original article written by Net Advisor

Vice President Joseph (“Joe”) Biden said at a Democratic fund raiser on 06-01-2010, that Friday’s (06-04-2010) jobs report (formally called the unemployment report) would be a huge improvement from the 290,000 jobs added in the last report (Source: Reuters).

The stock market is going to assume that the Vice President must had seen the report, or was close to people who knew what the numbers were in order to make a bullish judgment on it. The stock market rallied 225 points following the news (Source: CNBC Video). The headlines suggested it was due to pending home sales, but if you read into this number that would be far from accurate.

Despite Vice President Biden’s earlier bullish statements on jobs, the May 2010 jobs report was released and reality hit the financial markets hard.

The May jobs report found that almost all of the new jobs created were temporary government jobs for the 2010 Census. This is not exactly a bullish or a sign of a booming economy or an improving jobs market. Read more on the census.

“Total nonfarm payroll employment grew by 431,000 in May, reflecting the hiring of 411,000 temporary employees to work on Census 2010…Private-sector employment changed little (+41,000).”

— Source: U.S. Bureau of Labor Statistics (PDF), 2010-06-04

Why Did the Market Go Down So Much On the May Jobs Report?

Recall that we talked earlier that the market rallied 225 points based on what was supposed to be a great May jobs report as suggested by the Vice President. As we discovered, we did not have a bullish jobs report, it was just the opposite.

Typically what happens is when the market rallies on anticipated good news, then the news proves completely false, or even less than expected, the market will often reverse the entire prior gains plus an additional loss to adjust to what the actual data is now telling us.

Spin City

Now depending on which media outlet one follows, the spinsters were out in numbers. I read about one journalist who stated in a report in part:

“The Labor Department reported today that the nation added 431,000 jobs in May, the fifth consecutive month of job growth” (Source: ABC News).

How can anyone call 411,000 out of 431,000 temporary government jobs as true “job growth,” or suggest that the job growth is really making some major comeback? The census jobs was a footnote in the discussion. These 411,000 new temporary jobs will all be out of a job by this fall. Now to give credit back to the reporter, the article did acknowledge the President’s statement:

“Obama did note that most of the jobs in the May report were created to complete the 2010 census and noted that they are temporary jobs that will only last until the fall.”

— Source: ABC News

To further the political spin, and continuing the ABC article, the President came out to talk publicly about the jobs report.

President Obama stated (the jobs report is a) “sign that our economy is getting stronger by the day.” Obama also said, “The economic policies that we’ve put in place are working.”

— Source: ABC News

No president will ever admit that their policies aren’t working, and they will quickly blame everyone else, including the past president for problems continuing on their watch. The President used what has become his standard cliché phrase again, stating that we should not return “to the failed economic policies of the past, policies that gave us record deficits and declining incomes and sluggish job growth” (Source: ABC News).

This is a little bit of campaigning again, and does not address the reality of our economic situation:

  1. The current Administration has been creating record deficits more than any other President in history;
  2. That the economy is not turning around as optimistically as one would like in an election year, and
  3. That all of the massive stimulus and debt the Obama Administration has burden the U.S tax payer with has not produced anything of material value for jobs or the economy.

The result of all this stimulus has just artificially propped up the economy. It does not however represent the true status of the economy.

Under the idiomfool me once” (President Bush once explained what this means in this video), the stock market sold off on the jobs news, sending the Dow down 324.06 points, or 3.2 percent, to close at 9,931.22 (Source: Bloomberg-Businessweek).

In fact the Dow began falling faster as the President began speaking about the may job report. I could be wrong, but my interpretation of the increased sell off is the financial markets saying the Administration really doesn’t have a realistic grasp on the jobs or economic situation.

More Spin

Politicians and spinsters will often try and put the best face on a situation that is not exactly accurate. They make cosmetic changes in pictures or in words (rhetoric), to try to make things seem better that they really are. This is often called putting lipstick on a pig. That is what these people do. You have to give them credit for trying to in this case make a bad jobs report sound like its really a good thing.

The stock market isn’t easily persuaded by spin, and firms have their own analysts and bright traders who tend to see things as they are. In other words, the market will still see a pig as a pig, no matter how pretty you try to make it appear visually, or in verbal discussion about it. Thus markets react accordingly and appropriately to adjusting prices based on the current economic reality.

Since the stock market moved up 225 points a few days earlier based on Vice President Biden’s prognosticated forecast, when reality of that report came, the market sold off readjusting that previous upward movement. Added factors to this news to help send the market lower than the 225 point earlier gain included concern of another country, Hungary with credit default risk (Sources: Financial Times, UK, and The Malaysian Insider).

A Further Look at the Jobs Data

After reading the May jobs report in greater depth beyond the headlines, once again, we have people who were previously employed, want work, were available for work, but because they did not look for work in the last 4 weeks, they are not counted as being “unemployed.” The government refers to these people as “marginally attached to the labor force.” There were 2.2 million people who met this criterion (Source: BLS.gov., Page 2, Parr 5, PDF). If we factor these people back in the report as being unemployed, which they are, the jobs data is much worse than the government suggests.

The April 2010 jobs data showed an increase of 286,000. However one month later this number moved to about 286,000 negative, thus showing no growth and no change for even the previous bullish April jobs report. Thus whatever jobs that were created in April, apparently the same number disappeared in May (Source: BLS.gov., Page 2, Parr 2, PDF).

The so called “surge” or increase in home sales contracts seems to tell a different story when one takes a look at the demand for constructions jobs.

“In May, employment in construction declined by 35,000, largely off-setting gains in the industry in the prior 2 months. May’s job loss was spread throughout the sector.”

— Source: BLS.gov., Page 3, Parr 1, PDF

How can housing be improving if demand to build those homes have been decreasing for the last 2 consecutive months? Does that sound like high demand for homes?

Further, construction unemployment rate has increased not decreased by 1.1% from a year ago with 20.1% of the people in this industry unemployed. Construction unemployment is the highest for any job category according to the Bureau of Labor Statistics (Source: BLS.gov., “Household Data” Page 25, Table A-14).

Teen Employment Hit the Hardest
The hardest hit for unemployed young persons are teenagers. The national unemployment rate for teens (age 16-19) was 26.4% in May, up 3.2% points from one year ago.

Higher Education May Be Your Best Bet For a Job
In the adult category (age 25+) for the May jobs report, those 25 and older who have less than a high school diploma have 3 times the unemployment rate verses those with a B.A. degree or better.

Those who are age 25+ and have less than a high school diploma are showing a current unemployment rate at 15%, compared to those who have a Bachelor’s Degree or higher education have only a 4.7% unemployment rate.

— Source: BLS.gov., “Household Data” Page 11, Table A-1

Message: Kids. Stay in school and get advanced degrees.
So how is this affecting the financial markets and the overall economy? Read Market Report for more information.

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