Euquant

The recent unemployment figures caught everyone by surprise. Even conservative forecasters assumed that the economy would generate 500,000 jobs. It did not. Only 431,000 jobs were created and all but 41,000 jobs were connected to the government sector (mainly census workers).

Despite the disappointing job picture, it is important not to panic. If we examine private sector job growth historically, we see that this is a number that moves around significantly on a month-to-month basis. In 2010 year date the average monthly job gain has been 99,000 (January 16,000; February 62,000; March 158,000; April 218,000; and May 41,000). The average monthly job gain in 2006 was 141,000; and the average monthly job gain in 2007 was 66,000. In 2008 the economy lost an average of 317,000 jobs each month and in 2009 it lost an average of 388,000 private sector jobs. In short, private sector job gain moves around significantly and we should not put too much emphasis on one month. It is important however to examine the trend. Therefore, next month’s job report becomes very important.

Additionally, the most important factor in an economic recovery is consumer and investor optimism. The economy has been plagued by a series of unusual occurrences that have dampened overall optimism including the following: devastating tornadoes and floods; a volcano that disrupted world travel and shipping; a violent correction to the stock market brought on by technical glitches; Euro debt crisis; and the devastating oil spill that is the worst environmental catastrophe in the country's history. These have all adversely affected economic outlook.
The private sector generated only 41,000 jobs in May, after creating 218,000 jobs in April and 158,000 jobs in March. The unemployment rate decreased from 9.9% to 9.7%. Last month, we had a good job report wrapped up in a bad package (i.e. the job gain was significant, but the unemployment rate increased). This month, we had a bad job report wrapped up in a good package (i.e., the job growth was not nearly as good, but the unemployment rate decreased).

A significant concern is that the size of the labor force decreased by 322,000 persons, after increasing last month by 805,000 persons. This is a concern because would like to see work as moving into the labor market as the economy rebounds, rather than dropping out of the labor market. Job gains occurred in durable goods manufacturing (34,000), and temporary help services (31,000). Let’s focus attention on next month.
Thomas "Danny" Boston, professor of economics at Georgia Tech and CEO of EuQuant