Payrolls in the private sector increased 216,000 on a seasonally adjusted basis in May, which is in line with expectations. Although the gain was sharply below April’s revised increase of 270,000, today’s report marks the fourth straight month of 200,000-plus monthly advances. As a result, the current four-month average advance (+222,000) is the highest in more than a year.
It’s welcome news, of course, but some pundits are already arguing that the latest numbers indicate a dramatic turn for the better in the labor market. Maybe growth is set to accelerate, although the year-over-year comparison for payrolls (a more reliable measure of the trend than monthly changes) tells us that nothing much has changed relative to recent history. The economy’s minting new jobs at roughly a 2% annual rate. That’s been the norm for more than a year and today’s report confirms that the trend, while slightly better than we’ve seen lately, more or less matches the pace of growth in the recent past.
But make no mistake: the stable annual rate of payrolls growth is no small plus for the macro outlook. The advance will provide ongoing support for consumer spending, corporate profits, and keep the housing recovery alive. It all adds up to another clue for thinking that the contraction in first-quarter GDP doesn’t mark the start of a new recession.
The persistence of the 2% annual rise in private payrolls isn’t terribly surprising in the wake of the bullish signals we’ve been seeing in the jobless claims data. New filings for unemployment benefits have been trending lower this year, albeit with the usual short-term volatility that’s typical for this data set. But the overall trend has been clear in the year-over-year changes. With only two exceptions so far this year, claims have been falling in annual terms, providing a robust signal for anticipating ongoing growth in private payrolls.
No wonder, then, that a broad measure of economic activity has continually told us that recession risk has been low. It’s also no shock to see the stock market trending higher. The “wisdom” of the crowd has been correct, this time. Investor sentiment may be running a bit hot, but the market’s general forecast for continued growth has been spot on.
Although the usual suspects have been warning that cyclical darkness is near, a broad review of the numbers has told us otherwise, and for quite a long time. One day there’ll be a change in the cyclical weather, but not yet. There’s an old saying that genius is a bull market. What’s the source of the bull market? A positive macro tailwind. By that reasoning, we’ll continue to see a lot of “genius” money managers for the foreseeable future, courtesy of the business cycle.