The most recent U.S. jobs report was spectacularly weak. Only 38,000 new jobs were added in May. Even if we account for a reported labor strike, the adjusted number would only be a little north of 70,000. For perspective, a showing of around 200,000 each month would be the threshold for a “good” month at this point in the expansion. The job numbers were also lowered for previous months.
There are some basic takeaways. Multiple months of weak employment activity further justifies words of caution in government and private sector planning. The odds of a recession occurring in the next year have gone up in most polls. But, we should be in the clear for a bit longer. The unemployment rate went down, but it’s due to technical survey issues, fewer people looking for work, etc.; not from healthy economic growth. There is also a sizable discrepancy between the trending economic indicators and the stock market. This can happen in the short term, but the two have to match up over the longer run. The market is overvalued right now.
For Arizona, the report has milder implications. The state being late to the expansion means it hasn’t gone through a period of excess. In fact, one can argue that we are still catching up to normal, not racing past it. Local job growth should continue at a respectable rate. Also, the Fed can’t raise interest rates in June like it was hoping. Last week, the board was trying to hedge against a soft month by saying 80k jobs would be a welcome number. They were playing politics. Now that the report came in far weaker than their made up threshold, hands will be tied… probably.
Overall, while the odds of a U.S. recession went up according to most economists (except on Wall Street; see attached… http://finance.yahoo.com/news/sell-side-economists-react-disappointing-may-jobs-payrolls-report-125422000.html), local growth will continue. Arizona should outperform the nation over the next several years, during expansion and recession. We will eventually hit a soft patch, so pay close attention to the numbers this summer and fall.