The US employment numbers this morning generated a sharp rally in risk assets, with crude oil rising 3.5%, S&P500 up 1.8%, copper up 1.6%, and Brazilian Real up 90bp.
It’s worth taking a quick look at what in this employment report is causing such euphoria and whether it is justified.
The markets have focused on the private payrolls increase, which was 62K higher than the forecast. In particular it was the pickup in manufacturing payrolls of 25K vs 10K expected.
This is certainly great news, but unfortunately this report is not as strong as the markets’ reaction indicates. Here are the reasons:
1. The prior month in private payrolls was revised down by 11K. That’s not an insignificant revision.
2. The unemployment rate actually went up from 8.2% to 8.3% and underemployment (U6) went up from 14.9% to 15%. In fact, this is a third month in a row that saw an increase in U6.
3. Hourly earnings were lower than expected (0.1% vs 0.2%). The YoY growth in hourly earnings is 1.7%, the lowest since 2010. This is not positive for consumer spending.
4. Growth in temp payrolls continues to be significantly stronger than in permanent jobs. It tends to indicate lack of confidence among employers.
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