Employment Situation of May 2010

Released on 6/4/2010 8:30:00 AM For May, 2010 Prior Consensus Consensus Range Actual Nonfarm Payrolls - M/M change 290,000  540,000  225,000  to 635,000  430,000  Unemployment Rate - Level 9.9 % 9.8 % 9.7 % to 9.8 % 9.7 % Average Hourly Earnings - M/M change 0.0 % 0.1 % 0.0 % to 0.2 % 0.3 % Av Workweek - All Employees 34.1 hrs 34.1 hrs 34.1 hrs to 34.2 hrs 34.2 hrs

Highlights The headline number for payrolls for May was disappointing due to anemic growth in the private sector. However, overall payroll jobs in May surged 431,000, following a 290,000 boost in April, and 208,000 gain in March. April's spike came in much lower than the consensus forecast for a 540,000 jump. Net combined revisions for April and March were down 22,000. But the real focus of traders is private payrolls to discount the impact of temporary Census hiring. According to the BLS, Census hiring added 411,000 temporary jobs to the payroll gain. Private nonfarm employment increased only 41,000, following a 218,000 boost in April. In May in the private sector, the key positives were manufacturing (up 29,000), temporary help services (up 31,000), and mining (up 10,000). On the downside were construction (down 35,000) and financial activities (down 12,000). On a year-ago basis, payroll jobs came in at down 0.4 percent in May from minus 1.1 percent the prior month. The positive news in the payroll survey was in earnings, the workweek, and production hours. Wage inflation picked up with a 0.3 percent rise in May, following a 0.1 percent advance the month before. The average workweek for all workers edged up to 34.2 hours from 34.1 hours in April. Analysts had expected 34.1 hours. Production hours overall advanced 0.3 percent in May after a 0.4 percent rise the month before. For manufacturing, the improvement was even more notable with a 1.1 percent jump after a 0.8 percent gain in April. Despite the disappointing headline number for payroll jobs, there actually was some favorable news. The gains in temps and workweek point to future hiring. The aggregate hours jump for manufacturing suggests a robust increase in industrial production for the month. From the household survey, the unemployment rate slipped to 9.7 percent from 9.9 percent in April, coming in below the market forecast for 9.8 percent. On the news, equity futures fell sharply while Treasury prices rose.

Market Consensus Before Announcement Nonfarm payroll employment in April grew a healthy 290,000, following a revised 230,000 advance in March. Payrolls have risen for four consecutive months and in five of the last six. And April's boost was the largest in four years. Thus far, the contribution from Census hiring has been modest, added 66,000 to April's jobs, compared to adding 48,000 the prior month. Wage inflation is nonexistent currently but it is hard to tell initially if weakness is related to shifts in the composition of hiring, though that likely partially explains the weakness. Average hourly earnings were flat in April, following a 0.1 percent dip in March. The unemployment rate rose to 9.9 percent from 9.7 percent in March due to an 805,000 surge in the labor force. Looking ahead, the Philly Fed and Empire State surveys showed improvement in employment growth for May although the Chicago PMI survey indicated moderation. Nonetheless, Census hiring should boost employment notably in May, so pay attention to private sector hiring for the real trend.

Definition The employment situation is a set of labor market indicators based on two separate surveys in this one report. Based on the Household Survey, the unemployment rate measures the number of unemployed as a percentage of the labor force. Other key series come from the Establishment Survey (of business establishments). Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls.  Why Investors Care

During the mature phase of an economic expansion, monthly payrolls gains of 150,000 or so are considered relatively healthy. In the early stages of recovery though, gains are expected to surpass 250,000 per month. Data Source: Haver Analytics

The civilian unemployment rate is a lagging indicator of economic activity. During a recession, many people leave the labor force entirely, so the jobless rate may not increase as much as expected. This means that the jobless rate may continue to increase in the early stages of recovery because more people are returning to the labor force as they believe they will be able to find work. The civilian unemployment rate tends towards greater stability than payroll employment on a monthly basis. It reveals the degree to which labor resources are utilized in the economy.