David Morris

FRIDAY saw the release of the US non-farm payroll number for May. Following last month’s positive news, with 290,000 jobs added, the consensus this time was for an increase of around 520,000. Optimism grew as we came closer to the release and the “whisper number” crept up, with some estimates at 700,000. Although this included around 420,000 temporary hires for the government census, this still put the “best guess” at 100,000 to 280,000 additional private and public sector jobs.

So the actual number was a shock. Out of 431,000 jobs added, 411,000 were census hires, putting permanent payroll additions at just 20,000.

Certain analysts have been questioning the usefulness of the non-farm payroll data for a long time. Despite historically being the big event on the jobs calendar, it has shown a stubborn divergence from other payroll reports. For months now, the Automatic Data Processing (ADP) employment survey has painted a more negative picture. Likewise, weekly unemployment claims are still high, with the four-week average close to 459,000.

To add anecdotal evidence to the mix, last week Hewlett Packard said it would terminate 3,000 jobs and reorganise a further 6,000, while CitiFinancial (part of Citigroup) announced that it was axing jobs across the US. This points to continued softness in the labour market.

Along with housing, the foundation for a sustainable US recovery is an improvement in employment. While recent housing data has been encouraging, it is difficult to know how much of this is due to the tax breaks that expired in April. We will get a clearer picture over the coming months. In the meantime, investors are concerned that equities are priced for a V-shaped recovery which, given the jobs data, looks increasingly unlikely.