Some have opined the first Friday of each month brings a new chapter of the government chronicalizing the health of the US economy; the BLS Employment Report. Stock and bond markets respond immediately too it as many—analysts, traders, central bankers—form broad based conclusions, conclusions that typically support one’s preconceived biases. Many times the data is contradictory with many dismissing abnormalities as “one off events.”
Today the number of people filing for unemployment benefits is hovering near the lowest level in almost four decades, so is the labor participation rate (LPR), a huge contradiction. The unemployment rate is at a decade low to a level most regard as “full employment” which should cause wage pressures to accelerate. Another contradiction.
What gives? I will ardently argue because regulatory pressures are preventing greater job growth that increases the LPR, economic growth will remain anemic. Most fail to remember that 90% of job creation from 1996-2007 was created by firms employing less than 499 people according to the BLS. In other words, small business created the jobs not huge corporations, huge corporations that have the resources to challenge regulatory oversight.
In my view strong job creation that increases the LPR will not occur until there is regulatory relief. These job gains will not come from multinational corporations but rather from small businesses, businesses that have also been starved from capital because of regulatory changes, specifically Dodd Frank.
Commenting specifically about the largely disappointing April labor report, not all the news was bad. Wages gained 0.3% bringing the annual increase to 2.5%, nominally higher than expectations. Moreover average hours worked met expectations, rising slightly from March’s level.
Equites initially traded lower on the news, confirming the rising negative narrative the economy is slowing. Stocks then reversed course as the data may prevent the Fed from raising rates in June.
Commenting further about Friday’s markets, oil rose nominally as Nigeria’s daily production fell to the lowest levels since 1994 because of civil strife. As noted many times, the oil markets are devoid of any geopolitical premium, an environment find incredible given that the Middle East is facing the greatest anarchy in over 100 years and four OPEC nations are essentially failed nation states. The fire in Canada also supported prices.
What will happen this week? There is little on the economic calendar until late in the week. Data released include retail sales, a sentiment survey and inflation statistics.
Last night the foreign markets were up. London was up 0.48%, Paris up 1.31% and Frankfurt up 1.88%. China was down 2.39%, Japan was up 0.68% and Hang Sang up 0.23%.
The Dow should open nominally higher as oil is up about 1.5% because of the Canadian fire. The 10-year is unchanged at 1.78%.
