One of Those Fridays

One of the pitfalls in writing “Good News Friday” is that on some Fridays, the news isn’t so good. Should I (a) ignore the angry elephant in the living room and focus on something else, or (b) try to put some lipstick on that elephant… er, pig, without provoking it?

Here’s the elephant: Employers added a disappointing 54,000 net new payroll jobs last month, below the recent trend and below expectations for 185,000. The March and April numbers were revised down by a combined 39,000. Aside from the loss of 29,000 government jobs, private employers added 83,000, led by professional and business services with 44,000 and the unstoppable education and health services sector with 34,000. The unemployment rate ticked up by 10 basis points to 9.1 percent as more discouraged workers re-entered the labor force.

The labor market’s performance in May is discouraging, but consider the following:

  • Since the labor market began to grow again in March 2010, employers have added 1.8 million net new payroll jobs – not great considering the high level of unemployment and underemployment, but it’s a start.
  • It’s dangerous to put too much reliance on a single month’s worth of data. It’s better to consider this as a piece of evidence to be combined with other indicators over several months to draw a more accurate bead on where the economy is headed. That said, other indicators also suggest that the economy has lost momentum since the beginning of the year – GDP, the ISM manufacturing index, housing data and consumer confidence.
  • So far, this feels like the spring and summer of 2010 when the economy decelerated only to regain some momentum later in the year – see graph.
  • These dips are, to some extent, self-correcting. They usually usher in lower interest rates (check) and falling energy prices (likely on the way later this summer), which should re-stimulate growth.
  • The current combination of moderate job creation and low interest rates creates a favorable climate for the commercial real estate investment market. Stronger job growth, while certainly welcome, will eventually bring higher interest rates along with upward pressure on cap rates and mortgage rates as the economy adjusts to a stronger rate of growth.