June 3: Jobs Report Disappoints – Economic Highlights

Today’s disappointing jobs report confirms the loss of economic growth momentum that a number of other indicators were consistently pointing to in recent days. The key question at this stage is whether this is a temporary slowdown that will reverse in the second half of the year or something more enduring.

The Bureau of Labor Statistics reported the creation of 54 thousand jobs in May, significantly below the downward revised consensus expectation of about 160 thousand. Private sector jobs totaled 83 thousand, down from 251 thousand in April. The prior month’s numbers were revised down, with April’s gains coming down to 232 thousand from the originally reported 244 thousand level. The number of private sector jobs in April was revised down to 251 thousand from 268 thousand. In another negative sign, the unemployment rate increased again to 9.1% from 9% in April.

In the run-up to today’s jobs report, we got an unusual confluence of soft economic readings over the last few weeks. These reports show a downtrend in consumer spending due to the high fuel costs, a double-dip in housing and, even more worryingly, a decelerating trend in the thus far robust manufacturing end of the economy. These readings ran counter to expectations that the economy would spring back to robust growth in the current quarter following the anemic pace in the first quarter. As a result, estimates for GDP growth for the current quarter have been coming in recent days.

On the labor market front, the weekly jobless claims numbers have stubbornly remained above the 400 thousand level since early April after falling below that level consistently in the preceding months. But the most disappointing report on the labor market front was Wednesday’s ADP surprise, which resulted in material downward adjustments to expectations for today’s report. The expectation for today’s non-farm payroll report was the addition of around 190 thousand jobs before the ADP report. But the consensus estimate came down to about 160 thousand, post ADP, with the whisper number more in the 100 thousand vicinity. We know now that the ADP surprise was right on the money.

On the earnings front, we got a better than expected report from Cooper Companies (COO) after the close on Thursday. The maker of contact lenses and other medical products came ahead of earnings and revenue expectations and guided higher. VeriFone (PAY), the maker of point-of-sale terminals, also beat EPS and revenue expectations. On the IPO calendar, Groupon has filed to go public in the coming days. It will be interesting to see the type of reception that this much-anticipated IPO gets following LinkedIn’s (LNKD) success.

The major news of the day is the disappointing jobs report. This not only confirms the economic slowdown in the current period, but will cause downward revisions to second-half growth expectations.

The ISM Services Index is scheduled for release today at 10:00 AM EST, and is expected to increase to 53.8 in May after decreasing to 52.8 in April and 57.3 in March.