The news that employers created 175,000 net jobs during May clearly was enough to get investors excited: Major U.S. stock indexes are more than 1 percent higher as investors celebrate the news. But the numbers simply don’t deserve this kind of jubilation.
For starters, the unemployment rate inched higher from 7.5 percent to 7.6 percent, serving as a reminder that there are all kinds of folks whose prolonged joblessness is no longer reflected in the statistics but who can be tempted back into the market whenever there are signs of improvement. Moreover, in order to bring unemployment down to 6 percent or so within a three-year timespan, job creation would need to happen at roughly double the recent rate.
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Some of the euphoria within the markets may be due to a reassurance on the part of investors that the data is of the Goldilocks variety – neither too hot (in other words, it won’t demand that the Fed take its foot off the monetary stimulus pedal) or too cold (there are enough jobs being created that the economy seems likely to continue to grow, albeit at a rather glacial pace).
But Fed officials may not want to wait much longer to begin tightening monetary policy, and could start sending signals as early as the meeting scheduled for June 18 and 19 as to what their timetable might be. As Dennis Lockhart, president of the Atlanta Fed, told The Wall Street Journal earlier this week, before the release of the Labor Department data, policymakers are “approaching a period in which an adjustment to the asset-purchase policy can be considered.”
Add to that the fact that the sequester and defense cutbacks are likely to eat into corporate revenues and profits, and the probability that higher taxes will limit retail spending, and you’ve got another headwind for both the economy and job creation.
Some of today’s market gains may be due to a relief rally; others to speculation that the rest of the summer will bring with it more far-ranging and consistent signs of economic growth. But that’s a risky bet; we’re still stuck in the longest period of high unemployment the United States has witnessed since World War II.