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  Dr. Sohn's Commentary

Payroll Employment for May

June 01, 2012

The economy added only 69,000 jobs in May. The private sector created 82,000 jobs. Nevertheless, private sectors other than construction added jobs. The March and April numbers were revised down by 49,000. Compared to the first quarter average of 226,000,  job creation has been cut to about a third. The unemployment rate edged up to 8.2 percent from 8.1 percent as people looking for work increased. 

It is a very disappointing report. Spring is turning into winter again. Businesses are showing a high degree of caution in hiring people. There are a number of reasons for the cautiousness.

For businesses, Washington is a major source of uncertainty sapping business confidence.  The impending fiscal cliff is the biggest roadblock to hiring at the moment. Obama and the Congress should reach a compromise eliminating the big source of uncertainty as soon as possible. Otherwise, uncertainties will build during this election year hurting the economy and jobs.

In addition, there are risks to the economy emanating from external sources including the European financial crisis and the economic slowdown in China and Brazil. 

The Greek exit from the Eurozone is fait acompli. The turbulence has spread to Spain, Italy and even to France. The situation in Europe will get worse before it gets better.

n China, the economy is slowing faster than what the government statistics indicate. A real-estate bubble is playing havoc with the economy. The European debacle is having a major impact on Chinese exports to the region. The local governments are heavily loaded with debt.

Because of the warm weather during the winter, employers hired early instead of waiting for spring. The unseasonably warm weather, especially in cold states like the New England and Midwest, has boosted employment beyond normal expectations earlier this year. Not surprisingly, it is payback time.

However, there is some positive news on the job front. The household survey data, which does a better job of tracking hiring by small businesses, showed a gain of whopping 442,000.  The recent economic reports, including car sales and housing, are supportive of continuing economic growth.

Manufacturing is on an uptrend. Detroit is selling more cars at higher prices. The suppliers to the car industry are benefiting.  
Housing is another sector trying to get off the bottom. Pretty soon, it will no longer be a drag on the economy and could be a source of strength. Confidence among homebuilders has improved. There are more construction activities in apartments.

The probability of QE3 has increased. Monetary policy can only play a supporting role at the moment, but is the only game in town for the moment.

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