The jobs report was a complete dud. A 38,000 increase in jobs compared to an expectation of 155,000 jobs. Even accounting for the 35,000 who are involved in the Verizon strike, the number is still really low. On the face of it, it is the weakest performance since September 2010. In addition, the last two months were revised significantly downward meaning that employers added 59,000 fewer jobs in March and April than first reported.
But wait, there’s more. While the unemployment rate showed a decline to 4.7%, the decline reflected a contraction in the participation rate rather than more people getting jobs. The FED believes that it takes about 100,000 new jobs per month to absorb those entering the labor market. Thus, it’s not a case of the strength of the jobs market bringing back people who have been on the sidelines. And while there is a large margin of error in the jobs survey, when the economy is going well, the survey tends to underestimate, not overestimate. So, all we can do is wait until next month to see if this is no more than an aberration or the start of a new trend. Given the slow first quarter and the uncertain speed of the second quarter, this bears watching.
Is a recession on the horizon? Probably not at this time. In fact, the rest of the economic news this week was relatively good. But, if the weakness continues, it will certainly make the economy more susceptible to shocks down the road. Stay tuned to next month’s report.