EmailThursday's stock market provided an excellent reminder of the fundamental rule of easy-money physics: what goes down must come up. Everything that was lost on Wednesday was basically made up on Thursday.
Thank you Mario Draghi who cut the main refinancing rate by 25 basis points to 0.50% and pledged the ECB is ready to do more if necessary. That central bank party line was used by the Federal Reserve just a day earlier. In any event, it was a pledge of support that paired nicely with yesterday's better-than-expected initial claims report to lift stock prices noticeably higher.
Today, the market's attention is fixed on the April employment report and for good reason. The employment situation in the US is the Federal Reserve's guidepost along with inflation trends.
We learned on Monday that the inflation trend is one of disinflation and we learned today that the employment situation remains one of consternation.
According to the Bureau of Labor Statistics, nonfarm payrolls increased by 165,000 in April. That was slightly ahead of the Briefing.com consensus estimate of 155,000 and above an upwardly revised 138,000 (from 88,000) for March. February nonfarm payrolls, meanwhile, were revised up to 332,000 from 268,000. An extra 114,000 jobs were added with the revisions for February and March. Private payrolls for April increased by 176,000 versus 154,000 in March.
That is good headline news, as is the 0.2% increase in average hourly earnings and the drop in the unemployment rate to 7.5% from 7.6%. Unlike last month, the improved rate isn't because of a drop in the labor force participation rate. More people simply found jobs in April.
Strikingly, the number of long-term unemployed workers (27 weeks or more) decreased by 258,000. That is good news, but another striking development is that the number of people working part-time for economic reasons increased by 278,000, suggesting many long-term unemployed workers may have taken part-time jobs to start earning some income again.
As it so happens, the "real" unemployment rate, which accounts for unemployed and underemployed workers, rose 0.1 to 13.9%.
Another concerning item in the April report is that the average workweek dropped 0.2 to 34.4 hours. Aggregate earnings, meanwhile, declined by 0.3%, which isn't an encouraging indication insomuch as consumer spending is concerned.
Notwithstanding the concerns below the headlines, the market has responded favorably to the April employment report. The S&P futures are up 12 points and are trading 1.0% above fair value. The opening indication will launch the S&P 500 further into record territory when trading begins.
Today's report is certainly better than what we first saw for the March report; however, it still presents issues that are concerning and that should keep the Fed on its current policy path.
