Date: June 3, 2021

May Employment Report Is Unusually Important

I usually poke fun at the media who say things like,”this is the most important Fed meeting of all-time”. That’s just a ridiculous comment. However, I will say that the May employment due out at 8:30am on Friday is an unusually important one. Recall that last month, Wall Street was expecting more than a million new jobs and the unemployment rate well below 6%. The economy only created 266,000 new jobs with a 6.1% unemployment rate.

Something looked terribly wrong.

Many have offered that the incentive not to work and then collect $900 a week in benefits was too great. People would then work for cash under the table and really juice their earnings. While I have not experienced this firsthand, I have heard anecdotes from landscapers and restauranteurs who have labor shortages that are forcing them to close or run with a diminished crew.

After my shock of the woeful report last month, I thought it was likely an anomaly, an aberration. I figured that the May report would show a massive surge in new jobs with the April report being revised upward. I still believe that. My best guess (which is all it really is) is that the 645,000 new jobs created and 5.9% unemployment rate will be beaten to the good, and not by a small margin.

However, I am not arrogant enough nor ignorant enough to believe my opinion knows better than the data. If the May employment report is a repeat of the April report then we will have a significant economic problem on our hands to address.

Interestingly, at least 24 states have or are in the process of opting out of the additional pandemic unemployment benefits. While it may not impact the May report, it should definitely change the June and July ones.

Stay tuned.

As has been my theme since late April, stocks remain mired in a trading range which is not the worst thing in the world after such a meteoric rise. Index leadership has been schizophrenic and more challenging to trade. Sector leadership has been constant and steady with my favorite economically sensitive groups on top. I did lighten up on our energy services position after the big move as it was our largest sector position. Part of that money went to buying more banks with a new pilot position in healthcare. I am not sure how long that will last.

The employment report could push the market to test or break out of its range although I would not be eager to chase it so quickly. However, if stocks pulled back on the news and it bled into next week, I would be more apt to add risk.


Paul Schatz, President, Heritage Capital