OVERVIEW ~ May 31 through June 4 Monday was, of course, a holiday, so the market week began on Tuesday with the Dow Jones Industrial Average (DJIA) registering 10136.63 at the opening. Tuesday’s close brought a 1.1% loss to the DJIA. By Thursday’s close, the DJIA had risen about 2.3%, the first back-to-back gain of the current year. On Friday, though, the stocks markets dropped in response to the weak employment report and word from Hungary that it too was facing severe debt problems. Interest rates fell on Friday’s market action, with the 10-year T-note reaching 3.197%.
FOCUS ~ The Employment Report ~ A total of 431,000 payroll jobs were added in May, and the unemployment rate fell again to its March level of 9.7%. Ostensibly, this seemed to be good news until analysts looked slightly deeper.
Only 41,000 of the new payroll jobs were created by the private economy; the remainder were temporary census jobs that will soon disappear. Job formation, in other words, was very weak. And the move back to a 9.7% rate of unemployment suggested people who had been looking for jobs simply stopped: There really wasn’t an increase among the number of them who found employment so much as there was a decrease among those actually confident enough in the recovery to seek a job.
There are sources of mild optimism to be found in the fine print of the employment report. The number of hours worked by private sector employees has risen 4.9% over the last three months. And private wages income, combined with higher hourly earnings, rose by about 0.6% in May. Further, the manufacturing sector has shown a 12.1% increase (annualized) in hours worked over the last three months.
These increases in the number of hours worked suggest that employers may need to hire more workers relatively soon. But they are not convincing market investors that the economic recovery is still on a firm, upward path. Indeed, many analysts feel that the economy could slow now as easily as it could strengthen. This helps to explain the very uncertain course the market indices have been following, as they fail to establish a seemingly sustainable trend for longer than a few days at the most.
The employment report didn’t build a convincing case for either a slowing or a speeding up of the recovery.
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