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HOME > Our View >Page One >Good Employment News Meets...
Page One Archive
Last Update: 01-Jun-18 09:02 ET
Good Employment News Meets Less Bad Political News

There was a positive bias in the futures market ahead of the release of the Employment Situation Report for May.  The S&P futures were up 13 points, the Nasdaq 100 futures were up 29 points, and the Dow Jones Industrial Average futures were up 135 points.

The basis for the bullish bias was a bit questionable.  It stemmed reportedly from the news that a populist coalition was going to be able to form a government in Italy after all, thereby avoiding a snap election.  Additionally, there was reported relief that the new Socialist prime minister in Spain, who assumed his position after former prime minister Rajoy lost a confidence vote, won't call for a snap election.

We say the basis is questionable, because there is now a Socialist prime minister in Spain and a ruling coalition in Italy that is the same ruling coalition the market had been concerned about because it harbored anti-euro sentiment and a seeming disregard for fiscal discipline.

The uncertainty of snap elections in both countries might have been taken away, yet it stands to reason that the market could snap back to attention at the thought that the latest developments in eurozone politics aren't a true positive.  Rather, they are simply the cancellation of an uncertainty factor that was considered to be a true negative.

In terms of the Employment Situation Report for May, it was mostly positive.  The key takeaway from the report is that it still had a Goldilocks hue to it, having been accented with strong job growth and only moderate wage inflation.

The unemployment rate, meanwhile, fell to 3.8%, which is its lowest level since April 2000.

The notable headlines from the Employment Situation Report are as follows:

  • May nonfarm payrolls increased by 223,000 (Briefing.com consensus 190,000). Over the past three months, job gains have averaged 179,000 per month
    • April nonfarm payrolls revised to 159,000 from 164,000
    • March nonfarm payrolls revised to 155,000 from 135,000
  • May private sector payrolls increased by 218,000 (Briefing.com consensus 177,000)
    • April private sector payrolls revised to 162,000 from 168,000
    • March private sector payrolls revised to 153,000 from 135,000
  • May unemployment rate was 3.8% (Briefing.com consensus 3.9%) versus 3.9% in April
    • Persons unemployed for 27 weeks or more accounted for 19.4% of the unemployed versus 20.0% in April
    • The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 7.6%, versus 7.8% in April
  • May average hourly earnings were up 0.3% (Briefing.com consensus +0.3%), after increasing 0.1% in April
    • Over the last 12 months, average hourly earnings have risen 2.7%, versus 2.6% for the 12 months ending in April
  • The average workweek in May was 34.5 hours (Briefing.com consensus 34.5) versus 34.5 hours in April
    • May manufacturing workweek decreased 0.2 hours to 40.8 hours
    • Factory overtime decreased 0.2 hours to 3.5 hours
  • The labor force participation rate was 62.7% in May, versus 62.8% in April

Market rates, which were backing up ahead of the release, have remained on the defensive following the release.  The 2-yr note yield is up eight basis points to 2.47% while the 10-yr note yield is up 10 basis points to 2.92%.

The jump in rates is understandable.  The employment report for May fits within the context of a strengthening economy and it fits within the Federal Reserve's context of seeing an improving economy that validates further gradual increases in the fed funds rate.

The futures market has retained its positive bias after the release.  The S&P futures are up 16 points, the Nasdaq 100 futures are up 37 points, and the Dow Jones Industrial Average futures are up 175 points.

It will be a good start for the cash market, then, because good news on the U.S. economy is good news; and good news on eurozone politics is less bad than expected.

--Patrick J. O'Hare, Briefing.com

There was a positive bias in the futures market ahead of the release of the Employment Situation Report for May. The S&P futures were up 13 points,
 
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