How come the experts cannot get it right these days? The health authorities got it wrong on the Coronavirus pandemic. The Fourth Estate keeps calling rioting and looting peaceful forms of protest. The professional economists and the analysts’ forecasts regarding the labor market were completely off the mark in May. What else will they get wrong in the coming months? For the American people, it is a wonderful thing that the smartest men and women in the room were incorrect on the jobs front.
April Showers Bring May Flowers
The U.S. economy added an unexpected 2.509 million new jobs in May, up from the more than 20 million fewer jobs in April, according to the Bureau of Labor Statistics (BLS). The biggest surprise was that everyone in Washington and on Wall Street anticipated as many as eight million pink slips last month. Instead, America enjoyed the biggest one-month gain since 1939.
The unemployment rate fell to 13.3%, down from 14.7% in April. Once again, the brightest minds called for a reading of 19.8%.
Nearly every private sector industry posted incredible gains: leisure and hospitality (1.239 million), mining and logging (669,000), construction (464,000), retail (367,800), and manufacturing (225,000). The only sector to record noteworthy losses was the government, which shed 585,000 positions.
BLS researchers revised April’s record loss of jobs to 20.7 million. The employment decline was also raised from 881,000 to 1.4 million in March.
Average hourly earnings slipped 1%, or 29 cents, to $29.75. Average weekly hours picked up to 34.7, up from 34.2 in the previous month. The labor force participation rate jumped to 60.8%, up from 60.2% last month.
The Crowd Roars
As expected, the U.S. financial markets rallied on the news. The Dow Jones Industrial Average spiked as much as 1,000 points to reclaim 27,000. The S&P 500 climbed 2.7% and tested 3,200. The Nasdaq Composite Index maintained the momentum at an all-time high. The bond market suffered a considerable selloff as the benchmark 10-year Treasury note rose 0.105 basis points to 0.925%.
Many of the traditional safe-haven assets cratered after the better-than-expected labor numbers. Gold plummeted to below $1,700, while silver prices plunged 3% to around $17.50. The greenback had initially declined on the news as traders poured into equities, but the currency pared its losses to close out the trading week. The U.S. Dollar Index, which measures the buck against a basket of currencies, rose 0.28% to just below the 97 threshold.
But while the market is cheering, not everyone is convinced that this is the permanent trend. Jim Baird, chief investment officer at Plante Moran, told MarketWatch:
“One month does not make a trend, but the sharp turn in May justifies a bit more optimism about the near-term outlook. It’s still far too soon to know what the path back will look like, but the May employment report opens the door for an outcome that is less dire than the consensus view would suggest.”
He could be correct if this gives fiscal and monetary policymakers some pause over expanding their rescue and stimulus efforts. There have been reports that the White House is considering another $1 trillion package that includes infrastructure spending, but it might not happen until later in the summer. The Federal Reserve has also shown no indication that it is tapering its unprecedented quantitative easing infinity blitzkrieg. In other words, nobody is taking the training wheels off Wall Street and Main Street just yet. When it does, that is when you can get eaten by the bears.
Party Like It’s January 2020
Cynics are encouraging investors and observers to take a breather because unemployment is still at its highest level since the Great Depression, lockdowns remain in place, and COVID-19 cases continue ballooning. Sure, all of that is true. But, please, can we have a little bit of fun at least? It has been three months of bloodshed and blood baths amid the severe hemorrhaging in every aspect of society. It is the weekend, and the summer weather has finally arrived. Let’s put on a Benny Goodman record, pop open a bit of the bubbly, and celebrate like it is January 2020!
Read more from Andrew Moran.