The US stock market has opened higher, as Wall Street traders welcome today’s Non-Farm Payroll report.
The 292,000 increase in leisure and hospitality jobs shows that the economy is recovering.
Plus, the weaker-than-expected payroll gains could calm worries that the Federal Reserve feels pressure to slow its bond-buying programme soon.
- Dow Jones industrial average: up 142 points or 0.4% at 134,719
- S&P 500: up 25 points or 0.6% at 4,218 points
- Nasdaq Composite: up 125 points or 0.9% at 13,740 points
Mike Bell, global market strategist at J.P. Morgan Asset Management, says the 559,000 payroll increase is a ‘Goldilocks’ number (as every child knows, she liked her porridge not too hot, or too cold).
“Another weaker than expected payrolls number is allowing investors to relax a little about the prospect of Fed tightening, while still demonstrating that the hardest hit sectors of the labour market are bouncing back.
“This goldilocks scenario of a labour market recovery that is not too cold to raise concerns about the economy, but not too hot to prompt fears about faster than expected monetary policy tightening, is supportive of equity markets.”
Adding over half a million new jobs would be ‘amazing’ in a normal month, says Paul Ashworth of Capital Economics. But these are not normal times….and job creation is slower than hoped.
The 559,000 gain in non-farm payrolls in May was at least an improvement on the 278,000 gain in April but, with the level of employment still 7.6 million below its pre-pandemic peak, it would take more than 12 months at that pace to fully eradicate the shortfall. Only a few months ago we had expected to see several months’ worth of gains north of one million as the economy reopened, but labour supply is bouncing back much more slowly than demand….
Overall, in any other set of circumstances, monthly gains in excess of half a million would be amazing but, with a 7.6 million shortfall, it will be some time at that pace before the Fed’s “substantial further progress” has been met.
Robert Frick, corporate economist at Navy Federal Credit Union, says the US jobs market has moved into ‘second gear’. He’s encouraged by the rise in teaching and childcare jobs (see earlier post).
“The May jobs report was a major improvement over April’s, but we’re still not in full-speed-ahead mode, despite plummeting COVID-19 cases.
That the economy is reopening was evident in the near 300,000-job increases in leisure and hospitality, which account for half the total increase. Also significant: the high numbers of teachers and childcare workers hired back. This should have a multiplier effect on jobs in the coming months, as working parents who needed to stop or curtail working due to kids at home can resume their careers.
Evidence that many workers in the labor force are choosing to stay on the sidelines: the labor force participation rate is still low at 61.6%. Overall, this is hiring in second gear, and we have the potential to accelerate once some bottlenecks and barriers to working disappear.”
Willem Sels, chief investment officer, Private Banking and Wealth Management, HSBC, says there’s little danger of a ‘broad-based wage spiral’ breaking out:
“Following the big disappointment in the payroll data last month, today’s non-farm payroll release was closely watched, as investors assess whether the factors that limited job creation last month would be temporary or have persisted. In the end, the number bounced a bit less than expected, and there were no material revisions to last month’s number.
It seems that some of the factors that weighed on the numbers last month are slowly easing, and that there continues to a be a slow but gradual return of workers to the labour market, but slower than expected. In our view, unemployment remains too high for a broad-based wage spiral to develop.
Average hourly earnings in the US continue to rise last month, up around 0.5%, which may indicate that some firms are lifting pay to attract workers.
That includes a rise in average hourly pay at leisure and hospitality firms (from $17.86 in April to $18.09 in May), where there have been reports of staff shortages.
However, this has been a tricky area to analyze, because the pandemic has hit lower-paid jobs harder.
The Bureau of Labor Statistics says:
Average hourly earnings for all employees on private nonfarm payrolls increased by 15 cents to $30.33 in May, following an increase of 21 cents in April. Average hourly earnings of private-sector production and nonsupervisory employees rose by 14 cents to $25.60 in May, following an increase of 19 cents in April.
The data for the last 2 months suggest that the rising demand for labor associated with the recovery from the pandemic may have put upward pressure on wages. However, because average hourly earnings vary widely across industries, the large employment fluctuations since February 2020 complicate the analysis of recent trends in average hourly earning.
More than half the 559,000 new jobs created in May were in the leisure and hospitality trade, where payrolls swelled by 292,000 as people flocked to bars and restaurants.
Nearly two-thirds of the increase was in food services and drinking places (+186,000), with another 58,000 new jobs in amusements, gambling, and recreation, and 35,000 in accommodation.
But, leisure and hospitality is still missing 2.5 million jobs since the pandemic began.
In education, employment rose by 144,000 — including 53,000 in local government education, by 50,000 in state government education, and by 41,000 in private education.
Health care and social assistance added 46,000 jobs, including 22,000 new jobs in “ambulatory health care services”, and 18,000 in child day care services (perhaps reflecting increased demand from parents returning to work).
Employment in information rose by 29,000, including 14,000 in motion picture and sound recording industries.
Manufacturing employment rose by 23,000. That included a 25k gain in motor vehicles and parts, following a 38k fall in April (blamed on shortages of key parts such as computer chips).
Transportation and warehousing added 23,000 jobs, while employment in wholesale trade increased by 20,000.
But construction employment fell by 20,000, mainly due to job losses for nonresidential specialty trade contractors (-17,000).
That may be due to the shortages of materials that have hit builders in America (and beyond…).
Although below expectations, May’s job growth is an improvement on April’s weak payroll report.
Zach Moller of Third Way Economic says there is “steady improvement”, thanks to the Covid-19 vaccine rollouts.
The US unemployment rate has fallen to 5.8%, from 6.1%, the jobs report shows.
That’s partly thanks to firms taking on another 559,000 staff last month, helping to bring more people back into work.
The BLS says:
In May, the unemployment rate declined by 0.3 percentage point to 5.8%, and the number of unemployed persons fell by 496,000 to 9.3 million.
These measures are down considerably from their recent highs in April 2020 but remain well above their levels prior to the coronavirus (COVID-19) pandemic (3.5 percent and 5.7 million, respectively.
But…the labor force participation rate has dipped to 61.6% from 61.7%.
That can be a sign that more people have stopped looking for work, and dropped out of the jobs market (this can happen for many reasons, perhaps childcare commitments, or a lack of suitable vacancies…)
Just in: The US economy added 559,000 jobs in May, as hiring falls below expectations for the second month in a row.
Economists had expected around 650,000 new workers to be taken on last month, as the economy expanded strongly.
April’s disappointing Non-Farm Payroll has been revised slightly higher to show 278,000 new hires, up from 266,000, but that still shows weak job growth.
This may reinforce concerns that American firms are struggling to find labor amid the reopening rush.
The Bureau of Labor Statistics says there were “notable job gains” in leisure and hospitality, in public and private education, and in health care and social assistance (details to follow!)
Here’s our news story on the surge in UK construction growth…and costs… last month.
Trade news: The United Kingdom has secured a new trade deal with Norway, Iceland and Liechtenstein.
The deal cuts tariffs on some agricultural goods such as UK cheese exports to Norway, along with tariff reductions and quotas on pork, and poultry. UK wines and spirits including Scotch Whisky will also now be recognised in Norway and Iceland, the Department for International Trade says.
In return, import tariffs on shrimps, prawns and haddock coming into the UK will be cut. That, the UK says, will cut costs for UK fish processing and support jobs in that sector.
The deal also includes a chapter on digital trade — allowing electronic-only paperwork on goods trade which could make importing and exporting smoother.
There’s a cap on mobile phone roaming charges, recognition of professional qualifications, and British businesses can bid for around £200m government contracts in partner countries.
Norwegian Prime Minister Erna Solberg told a news conference in Oslo that “the deal allows for growth in trade for both our countries”.
But as the BBC points out, the deal won’t give the same opportunities as before Brexit.
However, the Norwegian government said the deal with the UK would not restore all the advantages it had when both countries were in the EEA.
“Prior to the UK’s exit from the EU, Norway enjoyed free movement of goods, services, capital and persons to the UK through the EEA agreement,” it said.
“A free trade agreement will not provide similar access to the British market.”
International Trade Secretary Liz Truss says it will boost trade:
Today’s deal will be a major boost for our trade with Norway, Iceland and Liechtenstein, growing an economic relationship already worth £21.6bn, while supporting jobs and prosperity in all four nations at home.
Here’s some reaction:
It may be too early for a tipple.. but those with a taste for wine may be interested in a new fund-raising drive from English winemaker Chapel Down.
My colleague Kalyeena Makortoff has the details:
Chapel Down is asking the public to take part in a fresh funding round worth up to £7m that will help the business expand its vineyard in the North Downs and ramp up exports.
It is the Kent company’s latest attempt to tap into investor enthusiasm for homegrown tipples as the democratisation of shareholding grows.
Chapel Down plans to use the money to scale up its wineries and finish planting grapevines on the North Downs, where its vineyards are expected to produce an extra 500,000 bottles of English sparkling wine a year. Some of the cash will also help develop its online sales portal and export business.
A virtual GP appointments app used by the NHS has announced a £3bn US stock market listing after agreeing to a blank-cheque company merger that will net its British-Iranian founder almost £1bn.
Babylon’s reverse merger with Alkuri Global, a New York-listed special-purpose acquisition company (Spac), makes it the latest firm to take advantage of a growing Spac trend that makes it cheaper for private companies to go public.
The Financial Times explains that regulators in Brussels and the UK have launched “a joint assault” on Facebook’s use of customer data to dominate in core markets such as digital advertising.
The Wall Street Journal say the moves are “ramping up regulatory scrutiny for the company in Europe”, adding:
Both the European Commission—the EU’s top antitrust enforcer—and the U.K.’s Competition and Markets Authority said Friday they are investigating whether Facebook repurposes data it gathers from advertisers who buy ads in order to give illegal advantages to its own services, including its Marketplace online flea market.
Bloomberg has more details of the EU’s case:
The European Commission said it will investigate whether Facebook misuses a trove of data gathered from advertisers to compete against them in classified ads. It will also check if the company unfairly ties its Marketplace small ad service to the social network.
Friday’s move by the EU is the first time it’s escalated a case into Facebook’s behavior beyond the preliminary stages. It follows other high-profile cases targeting Google, Apple Inc. and Amazon.com Inc. The EU previously fined Facebook for failing to provide correct information in the merger review of the WhatsApp takeover.
Although the two investigations are separate, they were announced at the same time this morning.
And both the UK’s CMA and the EC says they will “seek to work closely” together as these independent inquiries develop.
Facebook says it will cooperate fully with both the EU and UK investigations “to demonstrate that they are without merit”.
The social network giant explains:
“Marketplace and Dating offer people more choices, and both products operate in highly competitive environment with many large incumbents”.
We will continue to co-operate fully with the investigations to demonstrate that they are without merit.”
Competition regulators in the UK and European Union have both launched investigations into Facebook, examining whether the social media giant is breaking competition rules.
The UK’s Competition and Markets Authority (CMA) said it will look into whether Facebook is abusing a dominant position in the social media or digital advertising markets, by using advertising data to gain an unfair advantage in the classified ads and online dating sectors.
The CMA will examine if Facebook has unfairly used the data gained from its digital advertising services, and from its single sign-on service (Facebook Login), to benefit its own services.
In particular, it will look at Facebook Marketplace (which runs classified adverts), and its dating profile service Facebook Dating.
Andrea Coscelli, chief executive of the CMA, says the regulator will conduct a thorough investigation.
“We intend to thoroughly investigate Facebook’s use of data to assess whether its business practices are giving it an unfair advantage in the online dating and classified ad sectors.
“Any such advantage can make it harder for competing firms to succeed, including new and smaller businesses, and may reduce customer choice.
Coscelli adds that the CMA will work closely with the European Commission… who have just announced their own antitrust investigation to assess whether Facebook violated EU competition rules.
Again, the EC will examine if the tech giant used advertising data gathered in particular from advertisers in order to compete with them in markets where Facebook is active such as classified ads.
The formal investigation will also assess whether Facebook has tied Marketplace to its social network, giving an unfair advantage in the online classified ads services and breaching the EU competition rules.
It explains that online classified ads providers advertise their services on Facebook’s social network, while also competing with Facebook Marketplace.
Following a preliminary investigation, the Commission has concerns that Facebook may distort competition for the online classified ads services. In particular, Facebook might make use of the data obtained from competing providers in the context of their advertising on Facebook’s social network, to help Facebook Marketplace outcompete them.
Facebook could, for instance, receive precise information on users’ preferences from its competitors’ advertisement activities and use such data in order to adapt Facebook Marketplace
Competition chief, and executive vice-president, Margrethe Vestager, adds
“Facebook is used by almost 3 billion people on a monthly basis and almost 7 million firms advertise on Facebook in total. Facebook collects vast troves of data on the activities of users of its social network and beyond, enabling it to target specific customer groups.
We will look in detail at whether this data gives Facebook an undue competitive advantage in particular on the online classified ads sector, where people buy and sell goods every day, and where Facebook also competes with companies from which it collects data.
In today’s digital economy, data should not be used in ways that distort competition.”
Economist Richard Ramsey is also struck by the surge in construction costs – both for materials, and subcontractors:
That last point suggests tradespeople are responding to the law of supply and demand, and pricing their time accordingly…..
The UK building boom means that finding skilled construction workers is a real problem, says Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply:
“The construction sector continued its expansion programme with a phenomenal acceleration in growth and the strongest for seven years as new orders filled in at the fastest rate for almost a quarter of a century.
Residential work was back in the top spot as house building rose at the quickest pace since August 2014, serving as an antidote to the recent scarcity in housing for lets or buy, and driven by consumer demand and a boost from the stamp duty holiday.
“Busy purchasing managers were under pressure to keep up and buying up at the fastest rate since April 1997, changing sourcing strategies to find depleting essential materials and stocking up just as supply chain problems continued to mount along with prices. With inflation for goods and raw materials at a 24-year high, companies will be concerned that much-needed profits will be eaten away as building projects take shape and could be held up by some of the longest delivery times on record.
Skills shortages are also becoming a problem, with recruiters finding talented labour hard to find, as job creation was at robust levels and the threat of staffing cutbacks has become a distant memory.”
This chart, from the PMI report, shows just how badly supply chains are creaking:
The surge in input price inflation is quite startling — it’s being driven by soaring material costs, and shortages of stocks such as timber, roof tiles, paint, taps and concrete.