Karim writes:

Payrolls: Bleak with 1 Silver Lining


  • Most of the key headlines of the survey were weak
  • Payrolls up only 69k with net revisions of -49k (April now +77k not 115k)
  • Unemployment rate up from 8.1% to 8.2% (labor force up 622k and household survey up 422k)
  • Average hourly earnings up 0.1% and index of aggregate hours -0.2%
  • Median duration of unemployment up from 19.4 weeks to 20.1 weeks and U6 unemployment rate up from 14.5% to 14.8%
  • The silver lining is that the Diffusion Index (# of industries adding jobs less those cutting jobs, indexed on a 0-100 scale) rose from 56 to 59.4
  • Downside shifts were heavily concentrated in 3 sectors (Construction -5k to -28k; Retail 27k to 2k; and Business services 37k to -1k)
  • Construction and retail (which includes leisure and hospitality) likely reflect the weather payback that Bernanke has highlighted; business services cuts likely reflect the late nature of tax season this year and some of those layoffs may not have taken place until May.


  • The diffusion index improvement implies the underlying state of the labor market is somewhat better than the headline; probably in the 125-150k range
  • Purely based on the economic data, additional Fed easing is unlikely
  • But the worsening of financial conditions via Europe have increased the odds of a continuation of Twist (in its current form) for at least 2-3mths

Not to overlook the increase in the labor force participation rate from 63.6 to 63.8!

And Q2 gdp talk still about 2%.
Still looks to me good for stocks, not so good for people, though lower gasoline prices good for consumers as is weak consumption overseas.

16 Responses

  1. Good for stocks? Heard tonight all the gains for this year have been wiped out. What stocks are still rising?

    1. I meant good for corporate earnings, which at some point supports stocks.

      But for now, and quite often in fact, technicals rule.

      (And sometimes I’m a day or so early…)

  2. “If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered.” – Thomas Jefferson

    1. the one thing the founding fathers did get right is the way the constitution is allowed to change via the amendment process.

      not to easy so as to promote reckless and knee jerk changes, and not to hard to not be able to change as desired.

  3. I appreciate that you pointed out the silver lining in the report. I didn’t hear about that anywhere else. I suspect that you are correct that the US economy is slowly moving forward. But, I wonder if the problem for the stock market is fear itself. Keep up the good work.

  4. Cullen Roach showed that stocks are actually tracking a presidential election year exactly as history so far. If it continues then probably up 18% from begining of year by November.

  5. During bear markets fundamentals matter little ..stocks get cheaper .

    The cycle of investment insanity continues ..

    1)Swiss 10yr yields are 0.52% so in 10 years you get 5.2% .Roche will pay you 45 % in dividends during the same period . Nestle 38% and thats assuming zero dividend growth (which has never been the case for a 10 year period).
    and if stocks keep selling off you may get these stocks even cheaper .

  6. warren —

    i’ve been following the work of steve keen as he develops his three-party circuit theory model, which has made every bit as much sense to me as MMT (indeed they play very well together). one of the principles he’s derived that’s stuck with me is his formulation of aggregate demand as

    (AD) = (national income) + (change in debt stock)

    and its first derivative

    (change in AD) = (change in income) + (acceleration in debt stock)

    i’m very much in agreement with your synopsis of the US economy as muddle-through on the back of sustained large deficit spending from the currency-issuing authority while we deleverage. but i also can’t help but note that, following along at a considerable lag with Z1, the acceleration in debt stock that was so supportive from early 2010 into 2011 has in the last release gone negative. and i’m compelled to think that this shift — with the acceleration in debt going from a positive for change in demand to a drag — forecast a softening in US economic data that we’re now seeing.

    your thoughts would be appreciated.

      1. @WARREN MOSLER,

        the outstanding total of all dollar-denominated debt — so that the change in debt per unit time is a rate of the same units ($/time) as income or AD.

        keen talks about his modeling extensively (if polemically) at his blog (for example).

      2. so he’s saying that spending comes from income or debt,
        as per ‘soft currency economics’ etc.
        (that is, if any agent spends less than his income, another must spend more than his income or the output doesn’t get sold, etc.)
        and with the growth of debt slowing output can slow as well.


        But lower gasoline prices can help real spending of people with very high propensities to spend,
        lowering income for gasoline producers, etc. with low propensities to spend on real goods and services.

        And so far to me only looks like a slowing of GDP to maybe 1-2%

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