Weak Data Further Undermines Fed’s Credibility – Ep. 253

Weak Data Further Undermines Fed’s Credibility – Ep. 253

Summary: Today's big miss in the Nonfarm Payroll report indicates further proof for the Fed that the Q1 weak economic data was not transitory. Coupled with disappointing Labor Force Participation declines and increasing Trade Deficit numbers, the Fed will have no good news to justify a rate hike. All this news does not bode well for the U.S. dollar index, which closed at a new low for the year today. The next crisis is the dollar.

* Following yesterday's much stronger than expected May ADP Jobs report, the consensus was for 170,000 jobs and the actual number was 253,000
* The stage was set for another strong number for today's employment report
* But we didn't get it
* We got the official number from the U.S. government earlier this morning
* The consensus was for 185,000 jobs created
* We actually created, according to the government, just 138,00 jobs - a big miss
* In addition to that, they took last month's initial 211,000 report and they lowered that down to just 174,000
* In fact they made revisions to the prior month as well
* The official unemployment rate actually went down to 4.3%
* I think that is a new low
* Why did the unemployment rate drop?
* For the same reason it has been dropping; lots of people left the labor force
* Labor Force Participation once again dropped .02 to 62.7%
* That matches the all time record low
* We actually had more than 600,000 people leave the labor force in the month of May
* A new all-time record high
* In fact, breaking it down by part-time and full-time, all of the net new jobs added were part time jobs
* We actually lost 367,000 full-time jobs during the month of May
* That is the biggest decline in full-time employment in 3 years
* Of course, as usual, the jobs that we do create were in leisure and hospitality, education healthcare, temporary services
* We actually lost some information technology jobs, we lost jobs in the retail trade; small gains in the wholesale trade, a little better than normal in manufacturing and logging
* But a still a tiny portion of the overall jobs in goods-producing segments of the economy
* So we continue to create non-productive jobs which is another reason that the trade deficit continues to rise, and we'll get to that in a minute
* Weekly hourly earnings up just .02%, matching expectations on the lower end
* But they went back to last month's, originally reported as +.03% and they moved that down to +.2%
* So earnings are not growing, full-time jobs are disappearing, and this economy is weakening
* In fact, also yesterday, Challenger job cuts report announced layoffs surged in the month of May from 36,602 in April to 51,692 in May
* This is the highest number of announced layoffs of any month of the year
* That doesn't bode well for future job creation if all of a sudden we're getting a spike in layoffs
* In addition to the bad jobs report, which of course is going to weigh on GDP in Q2
* We got the trade deficit for April, which is the first month of the second quarter
* They were looking for a deficit of $46.1 billion
* Instead, the deficit ballooned all the way up to $47.6 billion
* From what was originally reported at $43.7 billion in March, revised that up to $45.3 billion
* So this is going to take away not only from Q2 GDP but it's going to go back and take away from Q1 GDP
* Remember, in my last podcast, I pointed out that the Federal Reserve, specifically, in their minutes said that before they raise rates again they want confirmation that the Q1 weak economic data was transitory
* Meanwhile all of the data that has come out since those minutes were released actually proves the opposite
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