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Jobless Recovery: Stocks Tumble on "Punk" Private Sector Hiring

Posted Jun 04, 2010 12:42pm EDT by Aaron Task
Related: ^DJI, ^GSPC, SPY, VXX, IWN, TLT, QQQQ

On the surface, Friday's jobs report doesn't look so bad: Non-farm payrolls rose by 430,000 in May, the second straight month of solid gains; the unemployment rate fell to 9.7%; and the averages for hours worked and hourly earnings beat expectations.

But it's hard to put lipstick on this pig, which helped send stocks sharply lower Friday:

  • * The payroll gain was about 100,000 jobs below consensus, far below the "whisper numbers" of as high as 800,000, and the tally for March and April was revised down.
  • * A big reason the unemployment rate came down is the labor force shrank by 325,000, a sign of Americans discouraged by their prospects for finding work.
  • * Over 45% of unemployed Americans have been out of work 6 months or longer and the average duration of unemployment hit a new record of 34.4 weeks.
  • * At 411,000, temporary hiring of census workers accounted for the vast majority of jobs created last month, while private sector payrolls rose by a paltry 41,000.

"The only part that mattered within the May payroll number was the 41,000 job add (sic) in the private sector," writes Miller Tabak, equity strategist Peter Boockvar. "Bottom line, private sector hiring remains punk."

Generally speaking, "the recovery is tracking close to the pattern of hiring that we saw during the 'jobless' recoveries of 1991 and 2001," notes Diane Swonk, chief economist at Mesirow Financial in Chicago. Based on those episodes, "we still have at least two years to go before we recoup the jobs lost to this 'Great Recession.'"

The lack of job growth in the private sector plays into to thinking of those, like NY Times columnist Paul Krugman, who believe it's way too soon for the government to rein in stimulus. Whether that Keynesian view holds sway in Washington remains to be seen. But this report could have profound implications for policymakers, both in Congress and at the Fed, as Henry and I discuss in the accompanying clip.
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