Employment Miss Likely to Keep Fed Patient, And Support the Cyclical Trade

For the second month in a row, the US payroll employment report has come in below expectations. The miss this month was not quite as bad as the miss last month, but was still notable. The market was expecting 675K new jobs, but only 559K were added.

Nearly all of the jobs added were in the leisure & hospitality and education categories. This is unsurprising given re-openings will affect those sectors particularly acutely. But, for the second month in a row we also saw fairly weak numbers out of both construction and manufacturing. Construction jobs fell by 20K while manufacturing jobs only rose by 23K after a 32K decline in April. Furthermore, the labor force participation rate fell by a tenth of a percent to 61.6% when the market expected it to rise to 61.8%.

Granted, the payroll report wasn’t exactly weak. But, but it wasn’t really that strong either. Not only did it miss headline expectations, but it lacked broadness, was outright weak in an important cyclical area (i.e. construction), and people actually dropped out of the labor force at a time when vast job openings and reduced unemployment benefits would have suggested the opposite.

It’s not surprising, then, to hear Cleveland Fed President Mester this morning say things like:

“Fed policy needs to be patient right now”

“Economy has more progress to make on hiring”

“Still have further progress to make on labor market”