What Does The Unemployment Report Tell Us About The Economy?

 
Markets slumped for the third week as global concerns pressured investors again, and domestic data painted a modest picture. For the week, the S&P 500 lost 0.40%, the Dow fell 0.19%, the NASDAQ dropped 0.82%, and the MSCI EAFE (Emerging Markets) fell 3.19%.¹
 
April’s job report showed investors that the labor market continues to improve, adding 160,000 jobs last month. However, the gains were far below the consensus estimate of 200,000 new jobs. However, the unemployment rate remained unchanged at 5.0%, one estimate of the underemployment rate—measuring discouraged workers and part-timers who want full-time work—fell to 9.7% from 9.8% in March. That’s good news, because it means that workers who have struggled in the recovery may finally be catching up.²
 
However, it’s not all good news. A separate private industry report found that job cuts surged 35.0% between March and April as firms let go of workers. Over 250,000 pink slips were handed out between January and April, the largest number since early 2009. Though the beleaguered energy sector is driving layoffs, shifting consumer preferences are also causing retail and computer companies to cut jobs.³
 
Further analysis of the job gains also showed that much of the fastest growth in hiring is coming from low-paying industries like retail and hospitality. The lack of high-paying job opportunities is reflected in wage growth numbers. Since 2005, the median weekly wage across all jobs has increased by just $176. Wage gains are even slower in low-paying industries and for workers with less education.⁴
 
Economists suspect that slow wage growth is contributing to sluggish consumer spending and slower economic growth. When foreign demand drops, economic growth depends more on domestic spending. However, there are signs that growth may be picking up; in April, wages grew 2.5% from the previous year.⁵
 
Will wages pick up enough this year to drive more purchases of big-ticket items? We’ll have to see.
 
Looking ahead, it’s unclear whether domestic economic data will drive away global woes. Realistically, we’re likely to see both soft and strong data in the weeks to come that will hopefully push stocks higher again once earnings season is over.