Consumers amp Retail Hiring

Today’s 69K reading in the May non-farm payrolls was the lowest since September 2010, when payrolls fell by 27K.

The rise in the unemployment rate to 8.2% from 8.1% was the first increase since June 2011.

Payrolls have seen four consecutive monthly declines in the rate of job creation, totalling 195K. The last time NFP slowed for four consecutive months was in 2008.

Manufacturing employment continues to save the day, by remaining in positive territory. But care must be paid in the midst of the recent releases in the Chicago PMI and Philly Fed surveys, which fell to three-year lows and whose track record in predicting turns in the US economy remains undisputed.

Retail trade employment has increased by only 2K, and continues to slow from the accelerating pace of the last two years. This raises questions about the sustainability of the US consumer, which continues to carry the US economy –alongside manufacturing.

Our charts illustrate the slowing pace of retail sector hiring, which has coincided with consumer confidence (as is doing so now) with the University of Michigan consumer sentiment and Conference Board’s consumer confidence. These two have already begun topping out.

Gold’s sharp rebound largely reflects the weakness of the US jobs report, which is deemed a powerful confirmation for further asset purchases by the Federal Reserve. Such reflexive moves disregard the possibility that any quantitative easing from the Fed will be sterilized by sales on the shorter-maturity notes, regardless of whether MBS or US treasuries are purchased on the long end.

Yesterday’s Chicago PMI hit its lowest level since October 2009 at 52.7 in May, from last month’s 56.2. The index has fallen by 10 points in 2 months, pushing its New Orders sub-index to the lowest since September 2009. Looking at our charts, the common denominator in all graphs, is the “lower highs” formation, whereby each series attempts to regain its 2010/2011 highs but fails half way.

Finally, the increasingly positive correlation between US non-farm payrolls and the S&P500 suggests that it’s a question of time before NFP dropped back below 100K and S&P50 tested the 1270s level. With weekly jobless claims having added 20K from their March lows and the VIX pushing above 25 and showing rebounds more frequently than anytime in the previous 6 months, the trend towards 50Ks in NFP, 1250 in S&P500 and 1185 in the Dow-30 appears increasingly plausible.

With all the headline stories about the comeback of US manufacturing, it is not surprise that the ISM manufacturing (blue) has outperformed. Yet, both sectors seem approaching the 50.0 line, denoting the split between expansion and contraction. Just as services lagged behind manufacturing in later 2007, the inverse may be occurring this time as manufacturing ISM remains above services.