Ed Bedford 2:59 a.m., May 22
Was Employment News Good or Bad? Er, Yes
The Labor Department announced this morning (June 5) that the nation lost only 345,000 jobs in May; economists had expected 500,000 or more. However, the unemployment rate jumped from 8.9% to 9.4%. Puzzled? The jobs data come from a survey of employers. The unemployment number comes from a survey of households. The rise in the unemployment rate suggests that more people are looking for jobs. They were not included when they were not looking; now that they are, the unemployment rate goes up. On balance, today's report is moderately good news, but it is like other economic reports of recent weeks: somewhat less awful.
There are bad signs in the data. Total hours worked dropped 0.7%. The average workweek fell to a record low 33.1 hours. Bottom line: employers aren't hiring. Economists think that technically, the recession may end in this year's second half. But the unemployment rate won't return to its normal 5% until 2013. Almost nobody thinks the economy will spring back quickly -- there will be no V-shaped recovery. We'll probably crawl along the bottom for some time.
The stock market initially zoomed at today's employment announcement, then fell back to red figures, and now is up moderately. Stocks have jumped back more than 30% since their March lows, although are still down almost 40% from their 2007 peak. Why the recovery? It's a liquidity rally. The Federal Reserve is printing money, and will have to print more in the future. The government and the Federal Reserve have pumped $13 trillion into the recovery in various ways. This almost has to give buoyancy to stocks. Yesterday (June 4) was a prime example. The retailing news was utterly dismal. Consumer spending is 70% of the economy. Stocks ignored the news and rose again. With money expanding, the dollar weakening, and commodity prices rising, higher stock prices are likely in the short run. But watch out for the long run. The hangover from the massive deficits and money printing will come. I still think the Dow Jones Industrial Average will wind up the year at 9,000, but at some point the liquidity flow has to be reversed. Then watch out.