In this issue of “The Bull Is Back! Markets Charge As Economy Lags”

  • A Note About That Jobs Number
  • Investors Are Too Optimistic
  • Technical Review
  • Portfolio Positioning
  • MacroView: Rationalizing High Valuations Won’t Improve Outcomes
  • Sector & Market Analysis
  • 401k Plan Manager

A Note About That Jobs Number

On Friday, the Bureau Of Labor Statistics released the widely expected employment report for May. Despite continued weekly jobless claims over the last month exceeding more than 8-million, the BLS reported an increase of more than 2.5 million jobs in May. The unemployment rate came in at just 13.3% well below the consensus estimates of 17-19%.

Both of these numbers were historical records surpassing any period back to the “Great Depression.”

Let’s start by taking a look at the raw numbers from the BLS.

Market, The Bull Is Back! Markets Charge As Economy Lags 06-05-20

From May 2019 to May 2020:

  • The civilian population grew by just 1.186 million. (This is a historically slow growth rate for the population which speaks to the demographic problem.)
  • The labor force shrank by 4.555 million. (We assume these people no longer want to work.)
  • The number of employed individuals fell by 19.602 million.
  • The number of unemployed persons rose by 15,047 million.

Again, these are numbers never before seen in history.

Importantly, the drop in the unemployment rate is due specifically to the substantial drop in the labor force. Since February, 6.3 million people have decided they no longer wanted to work, according to the BLS. Such is substantially more than would be expected even based on the large increase in unemployment.

Therefore, if we adjust for the labor force, and count the extra 4.9 million people who were “not at work for other reasons,” the “realistic unemployment rate” was 17.1 percent in May.

While that number is down from April, it is still higher than any other unemployment rate in over 70 years. (But the 13.3% number was as well.)