Executive Summary
As is typical with financial media, the 139,000 new jobs number released Friday was a celebrated “beat.” However, looking under the hood, one may conclude the “beat” is not indicative of the real employment picture. The first graph shows the Employment-Population Ratio dropped (first graph). More telling is the fact that 13 of the last 16 previous reports have been subsequently revised downward (second graph). And another concerning discrepancy is the difference between the Establishment Survey (139,000 new jobs) and the Household Survey (drop in employment of 696,000 people). And finally, full-time jobs fell by 623,0000, and part-time jobs increased by 33,000. You can decide whether the “beat” should be celebrated.
For further analysis, continue to read The Details below for more information.
“If you torture the data long enough, it will confess.”
–Ronald H. Coase
The Details
Last Friday the financial media, by looking at one number, celebrated what in reality was a dismal employment report. The new jobs number “beat” expectations coming in at 139,000 versus expectations of around 126,000. While the reported new jobs number was slightly higher than projected, the preponderance of other data shows a weakening employment picture.
In May, the overall working age population grew by 188,000. The Employment-Population Ratio dropped to 59.7, lower than the pre-pandemic level. Below is a graph showing the downward trend in the Employment-Population Ratio.
What is amazing is how little attention is given to the downward revisions for prior months’ reports. The March new jobs number was revised down by 65,000 jobs, and the April report was lowered by 30,000 jobs. The graph below from Zero Hedge shows that 13 of the prior 16 monthly reports were revised downward.
The more concerning discrepancy is the difference between the Establishment Survey and the Household Survey. While the Establishment Survey reported a mediocre 139,000 new jobs, the Household Survey reported an unbelievable drop in employment of 696,000 people. And the reason this drop did not reduce the unemployment rate is this reduction was attributed to people who dropped out of the labor force. The “not in the labor force” category in the Household Survey grew by 813,000. Look at the graph below from Zero Hedge illustrating the difference in the Establishment and Household Survey jobs reported.
And to make matters worse, full-time jobs fell by 623,000, while part-time jobs increased by 33,000. It is always amusing to see how the financial media tends to focus on one number, the one which has been over-inflated in 13 of the past 16 months and ignores the vast majority of the supplementary data. Overall, the May jobs report was quite weak, not the “beat” everyone seemed to cheer about.
The S&P 500 Index closed at 6,000, up 1.5% for the week. The yield on the 10-year Treasury Note rose to 4.51%. Oil prices increased to $65 per barrel, and the national average price of gasoline according to AAA decreased to $3.13 per gallon.
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