May Jobs Report: An Economic Milestone (or Two)


The economy created 217,000 jobs in May and the unemployment rate remained at 6.3 percent. With this report, the US economy reached a milestone: Five years after the end of the recession, total employment is finally above the pre-recession peak, which means that we have FINALLY recovered 8.7 million jobs that vanished from 2008 to 2010. Total employment is now 98,000 above the previous peak and at a new all time high, although this obviously does not take into account that the labor force has grown substantially since the recession started in December 2007. That said, let's take milestones when theu come along! The May results also mean that after the severe winter, the job market remains on an upward trajectory. Over the past three months, job creation has average 234,000, ahead of the monthly job growth seen over the past year of 197,000; and through the first five months of the year, the economy has added just over a million jobs, slightly ahead of last year’s pace despite the winter woes.

There was even a smidge of good news about the labor force -- after that massive 806,000 decline in April, it increased by a modest 192,000 in May. Still, the participation rate (the number of people working or actively seeking employment) remains at a 36-year low of 62.8 percent, which not exactly a sign of a robust economy. Since the start of the Great Recession in December 2007, the labor force participation rate has fallen by more than three percentage points.

One of the things missing from this recovery has been an increase in wages. Average hourly earnings increased by 0.2 percent in May from April, pushing up the annual growth rate to 2.1 percent from 1.9 percent a month ago. This is just the kind of gradual increase in wages that the Federal Reserve is hoping to see – not too slow to indicate a problem, but not so fast that the central bank has to worry about an inflationary spike. The May jobs report shows enough economic progress that the Fed can continue to slowly reduce its bond purchases by the end of the year. Still, with 9.8 million Americans out of work and many more under-employed, there's no doubt that the nation is still struggling to get back its employment mojo.

Speaking of milestones, in the “you may have missed it category,” US household net worth surpassed the pre-recession peak and topped out at $81.8 trillion in the first quarter, according to the Federal Reserve's Q1 2014 Flow of Funds report. That move higher has been powered by a doubling of stock indexes and an improving real estate market. Bill McBride at Calculated Risk notes "Although household net worth is at a record high, as a percent of GDP it is still slightly below the peak in 2006.”

MARKETS: The CBOE Volatility Index (VIX, aka “the fear index”), an options-based gauge of expected swings in the S&P 500, closed at a 52-week low of 10.73 and its lowest finish since February 23, 2007, when it closed at 10.58. It seems like forever ago, when the VIX closed at its all-time high of 80.86, but actually it was only 5 1/2 years ago, on November 20, 2008. Have we returned to the sort of complacency and risk taking that produced the financial crisis? According to The Economist, there are some warning signs: “Issuance of poorly-rated ‘junk bonds’ has risen sharply, as have loans to already highly indebted firms; former pariahs like Greece can now borrow at single-digit rates.” As you celebrate market highs, tread carefully…

  • DJIA: 16,924, up 1.2% on week, up 2.1% YTD
  • S&P 500: 1949, up 1.3% on week, up 5.5% YTD (18th closing high of year)
  • NASDAQ: 4,321, up 1.9% on week, up 3.5% YTD
  • 10-Year Treasury yield: 2.58% (from 2.47% a week ago)
  • June Crude Oil: $102.66, down 0.05% on week
  • August Gold: $1252.50, up 0.5% on week
  • AAA Nat'l average price for gallon of regular Gas: $3.67 (from $3.61 a year ago)

THE WEEK AHEAD: Retail sales will be the main event on the economic calendar, with expectations of a robust monthly gain. Sen. Elizabeth Warren (D-MA) has proposed a bill to address America's $1 trillion student debt problem. Democrats plan to bring it to a floor vote this week. The bill would allow students and families who previously borrowed at higher interest rates to refinance their loans at the lower rates available to students who borrow now.

Mon 6/9:

Tues 6/10:

7:30 NFIB Small Business Optimism Index

10:00 Job Openings and Labor Turnover Survey (JOLTS)

Weds 6/11:

Thurs 6/12:

8:30 Weekly Jobless Claims

8:30 Retail Sales

8:30 Import/Export Prices

10:00 Business Inventories

Fri 6/13:

8:30 PPI

9:55 Consumer Sentiment