Strategic Briefing | 6.2.2011 | U.S. Labor Market

Scary signs for jobs
CNNMoney | June 1
All eyes in the financial world are on the government’s monthly labor report due Friday, hoping to see that the job market continued to grow in May. But after several indicators pointed to a recent slowdown in job growth, the glass is now looking closer to empty than full. “You could call it a soft patch, but it’s the second or third soft patch we’ve seen in the recovery,” said Paul Ashworth, chief U.S. economist with Capital Economics. “For a recovery that is less than two years old, it’s troubling to say the least.”

Economists rush to mark down payrolls estimates | June 1
Wall Street economists slashed their expectations of May’s nonfarm-payrolls growth Wednesday, after two data points that typically provide hints about the strength of that number both flashed severe weakness…. “We have no choice but to revise down our payroll estimate” in light of the weak ISM and ADP reports, said the economic team at Bank of America Merrill Lynch, in a note announcing they had sliced their forecast to 125,000 nonfarm payrolls for May from the prior estimate of 165,000.
Economy, shaky eurozone push bond yields lower
USA Today | June 1
The yield on the bellwether 10-year Treasury note fell below 3% for the first time since December, reflecting weakness in the U.S. economy. The 10-year T-note fell to 2.94% Wednesday, down sharply from 3.74% Feb. 8. That’s good news for mortgage rates, which track the 10-year Treasury yield. But lower rates reflect Wall Street’s worries about the economy…. “The U.S. Treasury market is viewed as the ultimate safe haven, and funds flow to the U.S. market in times of turbulence,” says Chris Molumphy, chief investment officer of the Franklin Templeton Fixed Income Group.
Wall St sinks as banks slash jobs outlook
Reuters | June 1
Goldman Sachs and several other big financial institutions cut estimates for non-farm payrolls growth in May after ADP Employer Services reported much lower-than-expected growth in private payrolls last month. “If we have a payrolls number with revisions that is anything like the ADP on Friday, then we are going to struggle over the next couple of months,” said Jim Paulsen, chief investment officer at Wells Capital Management.
Economic Outlook Darkens
The Wall Street Journal | June 2
Economists predict some problems now hampering growth, including soaring gasoline prices and supply-chain disruptions caused by Japan’s tsunami, will moderate in months ahead. But with unemployment high, the housing market moribund and ongoing financial turmoil in Europe, the slowdown could turn into something more ominous.”It definitely makes me more nervous about the outlook,” says Morgan Stanley economist David Greenlaw. “The economy can’t withstand much more than a temporary slowing at this point.”
Employment Data May Be the Key to the President’s Job
The New York Times | June 1
No American president since Franklin Delano Roosevelt has won a second term in office when the unemployment rate on Election Day topped 7.2 percent. Seventeen months before the next election, it is increasingly clear that President Obama must defy that trend to keep his job. Roughly 9 percent of Americans who want to go to work cannot find an employer.
Here we go again — another round of global growth worries
AMP Capital | June 1
The key question is whether the long list of worries will lead to a return to recession and a new global bear market, or just another soft patch and correction in shares in the context of an ongoing recovery. This is exactly the same issue as a year ago when a ‘double dip’ became the big concern. Our view back then was that the risks had increased but ultimately the recovery will continue, and it did. The same is likely this time around, with the latest correction probably giving way to renewed strength by year end.
* Global monetary policy remains very easy and will now likely remain easy for longer. The current soft patch, if anything, will ensure that the US Federal Reserve keeps interest rates near zero for longer. If it intensifies it may also result in another round of quantitative easing (QE3). Increasing uncertainty will also help prevent or delay further tightening by the European
Central Bank.
* It’s quite normal for business conditions indicators, or PMIs, to roll over after rising to high levels without sliding back into recession. This is part of the normal ebb and flow of economic
data. For example, after peaking in May 2004, the US ISM indicator moderated for four years, without being associated with recession.
* The strong US corporate sector is likely to continue to underpin further gains in US employment and business investment, both of which are critical in sustaining the US economic recovery.