Friday Look Ahead: Keeping an Eye on the May Jobs Report

There are signs the brutal pace of job losses is slowing, and the economy could even add some private sector jobs this year.

The May employment report, released at 8:30 a.m. Friday, is expected to show a reduction of another 525,000 non-farm payrolls last month, and an unemployment rate of 9.2 percent. If there were new jobs last month, they were added by the government, which hired 60,000 census workers in April.

As bad as it is, this could be the best showing in six months. "Anecdotally, firms are saying things are still really bad but not as bad as the first part of the year. It looks like the worst of it occurred in the first quarter. It's really a question of how these numbers taper off in the next few months," said Stephen Stanley, chief economist at RBS Greenwich Capital.

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"We're looking at moderation, and moderation is still at pretty nasty levels. They're still bad numbers...The trend is in the right direction," said Diane Swonk chief economist at Mesirow Financial.

"There's no question the pace of decline is moderating. We're likely to see positive growth in the second half of the year, and we may even have a turn in employment by the end of the year," she said. However, Swonk expects the unemployment rate to peak in second quarter of 2010. "Even though we start generating jobs, we don't generate enough."

Thursday's report of a very slight decline in the weekly initial and continuing jobless claims encouraged some economists that job losses may have peaked. Continuing claims of 6.735 million fell from 6.750 million the week earlier, the first decline in five months. Initial weekly claims were 621,000, down from 625,000 the week earlier.

"This could be an indication that hiring has started to pick up again, and measures of hiring such as online job advertising indexes have been a little better recently. Such a pickup would be a quite positive sign—but it is still very tentative," Goldman Sachs economists said in a note.

Economists say the unemployment rate is not likely to peak before the end of the year or first half of next year. Unemployment could reach 10 percent or more. It was at 8.9 percent in April.

Auto Impact

Some economists had predicted the woes of the auto industry would add to jobless claims as shutdowns by bankrupt General Motors and Chrysler added to the unemployment rolls.

"There's a really interesting story in claims. The fact that we have fallen for the past three weeks, since the initial Chrysler and GM worker filings, we've essentially been able to hold below the March peak in claims, which was 674,000," said Citigroup economist Steve Wieting.

"If we're not seeing substantially more weakness in auto-related claims by next week's numbers, the possibility that the auto industry is going to engender a whole new larger weakness in employment is diminishing. That's already been the case in the last few weeks," said Wieting.


"There's enough of a decline in layoffs in other industries to allow broader jobless claims to fall, even with that very severe event embedded," he said.

Wieting said the shut down of hundreds of General Motors and Chrysler auto dealers will not have a big, short-term impact on the economy even though they employ more workers than the production side of the industry.

"Layoffs are over a longer period of time. Consider it a drag over the next couple of years," he said. Some dealers that have been dropped by GM and Chrysler may switch to other car brands, rather than close.

Wieting expects to see a 500,000 reduction in non-farm payrolls Friday. He expects to see big declines in employment again in May and June, then periods of lower and even flat employment losses, before the unemployment rate peaks at 10 percent in 2010.

"There's a lot reasons to believe this recovery will take place at a slower pace than in the past. Just look at what's happened in net worth and savings," said Wieting. "...the build back in savings and the adjustment to the decline in housing related wealth doesn't suggest you go back to right where we were on spending levels."

Who's Next

Swonk said the relative strength in the job market for teachers and health care workers could be changing and that could start showing up in the numbers in coming months. "those are the places where we haven't seen many layoffs yet...Hospitals are cutting back on administration and overhead staff," she said.

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Another field where layoffs are expected is commercial real estate, which could decline into next year. "You get to the point where you're near zero in residential construction but you'll see layoffs in commercial...Commercial construction has now been handed the baton to collapse," said Swonk.

Swonk also said "shadow" unemployment could be reaching a level of 16 percent. That number, for instance, includes workers who stop counting as unemployed because they have taken part time work to get by.

What Else to Watch

The "risk trade" was back on Thursday, with the dollar weaker, stocks higher, bonds lower, and commodities higher. Besides the employment report, consumer credit is reported at 3 p.m. Friday.

President Obama visits German Chancellor Angela Merkel in Germany Friday and then travels to Paris.

Wal-Mart holds its annual meeting in Fayetteville, Ark., and the Second Circuit Court of Appeals hears the case of a coalition of Indiana pension funds seeking to block the sale of Chrysler assets.

Questions? Comments?