Listless was one way to describe the market's disposition ahead of the release of the April Employment Situation Report, as the S&P futures were little changed. Following the release, the market's mood has improved a bit. The S&P futures are now up four points and are trading 0.1% above fair value.
The lead headlines from the report itself were all encouraging. Payrolls increased more than expected, the unemployment rate dropped, average hourly earnings picked up and so did the average workweek.
Still, the key takeaway from the report for us is that there were some elements that left it a little out of sync with the view that the economy is poised to hit, and sustain, escape velocity.
The asynchrony we are referring to is the drop in the labor force participation rate and the deceleration in average hourly earnings growth on a year-over-year basis. The former dipped to 62.9% from 63.0% while the latter slipped to 2.5% from 2.6%.
Why there hasn't been a meaningful acceleration in average hourly earnings growth with the unemployment rate at 4.4% is one of the more perplexing questions, yet we think it does provide the answer for why consumer spending has not lived up to the reportedly high levels of consumer confidence.
Perhaps that changes in the months ahead, yet it remains a stark reality today that will be buried beneath the press headlines addressing the job gains and the lowest unemployment rate since May 2007.
The notable headlines from the Employment Situation Report are as follows:
- April nonfarm payrolls increased by 211,000 (Briefing.com consensus 180,000). Over the past three months, job gains have averaged 174,000 per month.
- March nonfarm payrolls revised to 79,000 from 98,000
- February nonfarm payrolls revised to 232,000 from 219,000
- April private sector payrolls increased by 194,000 (Briefing.com consensus 175,000)
- March private sector payrolls revised to 77,000 from 89,000
- February private sector payrolls revised to 222,000 from 221,000
- April unemployment rate was 4.4% (Briefing.com consensus 4.6%) versus 4.5% in March, as the number of employed civilians in the labor force increased (+156,000) while the number of unemployed decreased (-146,000)
- Persons unemployed for 27 weeks or more accounted for 22.6% of the unemployed versus 23.3% in March
- The U6 unemployment rate, which accounts for both unemployed and underemployed workers, decreased to 8.6% from 8.9% in March
- April average hourly earnings increased 0.3% (Briefing.com consensus +0.3%) after increasing a downwardly revised 0.1% (from 0.2%) in March
- Over the last 12 months, average hourly earnings have risen 2.5% versus 2.6% for the 12-month period ending in March
- The average workweek in April was 34.4 hours (Briefing.com consensus 34.4), versus 34.3 hours in March
- April manufacturing workweek increased 0.1 hours to 40.7 hours
- Factory overtime decreased 0.1 hours to 3.2 hours
- The labor force participation rate decreased to 62.9% in April from 63.0% in March
In other developments, Dow component IBM is under pressure this morning after Warren Buffett disclosed in a CNBC interview that Berkshire Hathaway sold a third of its roughly 81 million share position in the stock in the first and second quarters. That sale, he said, was because earnings growth has not lived up to expectations, leading him to value the company differently than he did six years ago.
Shares of IBM, which Mr. Buffet said he stopped selling when it traded below $160, are down 3.3% in pre-market action to $153.80. That weakness is weighing on the Dow futures.
Generally speaking, the market appears to be in a holding pattern -- almost literally. The net change in the S&P 500 over the last seven trading sessions is 0.91 points.
It will get a little push at the start of today's trading, but with lingering concerns surrounding the sharp decline in oil prices ($45.38, -$0.14, -0.3%) of late, increased regulations slowing the pace of growth in China, and lingering doubt that the House GOP's health care reform bill will pass the Senate, there could still be a gravitational pull that keeps the market in check.
As a reminder, the final vote in the French presidential election will be held on Sunday. Pro-EU candidate Emmanuel Macron is shown in the polls to be ahead by a wide margin. That is certainly the preferred outcome for the market, which is another way of saying that, if Monsieur Macron loses, the open on Monday won't be pretty at all.
For now, the opening indication today isn't pretty or ugly. It's just rather ordinary.