Friday, June 03, 2016
I Told You So
The monthly employment report could not be worse, and will rebound next month, but only to very disappointing levels. One of the special factors causing the "shock" factor in this report are probably Texas floods, with manufacturing and transportation delays. But a great deal of it cannot be blamed on special factors. The Verizon strike doesn't have anything to do with it.
There is strong agreement for May between the Household and Establishment surveys. Household is +26,000 jobs; Establishment is +38,000/25,000 private.
According to Household Table A-8, non-ag part-time workers for economic reasons rose by almost 500,000.
All of this really shouldn't shock anybody, but it will be reported and felt as shocking. There were significant downward revisions to prior months in the Establishment survey. The unemployment rate fell to 4.7% because of participation changes, with the month-to-month Not In Labor Force total rising 664,000. Participation rates have been falling for a couple of months. In March it was calculated at 63.0; this month it is 62.6 - lower than May 2015.
What is happening is that services are slowly downturning to follow manufacturing. Manufacturing is not pulling out at all.
Temporary help services was quite negative at -21,000. Generally this doesn't predict strong performance over the next few months.
Rail intermodal has been highly negative for several months. The CMI business to business credit survey (see page 6; look at the graph) shows that services are following manufacturing, with some more to go.
The June rate hike (snicker) is off the table. It always was.
The collapse in the worst-of-the-worst subprime auto issues has a little to do with this, but the basic problem is that the growth impetuses are all slowly fading. Inventory pile-ups have been forecasting this for quite some time.
Nothing I am seeing in any reports changes my assessment. We are in the first stages of a European-style business-led recession. It will be long and slow.
More about drivers whenever I have the time. In the meantime, from a political perspective, it ought to be obvious that the advantage is to the candidate talking about JOBS JOBS JOBS instead of the candidate talking about continuing current policies.
UPDATE: The May service sector reports are out, confirming my comment that the mechanism here is a slowing in services. Markit. ISM.