What’s the Story? NFP, China, Europe and Seasonality

by CC June 1, 2012 9:10 am • Commentary


Job growth in May was the weakest in a year and employers added far fewer jobs in the prior two months than previously reported, suggesting the economic recovery was faltering.

Employers created a paltry 69,000 jobs last month, the Labor Department said on Friday, the fewest since May last year. Economists polled by Reuters had expected nonfarm payrolls to increase 150,000.

In addition, employers added 49,000 fewer jobs than previously estimated in March and April. The unemployment rate rose to 8.2 percent from 8.1 percent as people flocked into the labor market.

Calculated Risk


Markit’s Eurozone Manufacturing Purchasing Managers’ Index (PMI) dropped to 45.1 in May from 45.9 in April, slightly above a preliminary reading but marking its lowest level since June 2009.

It has been below the 50 mark that divides growth from contraction for 10 months. Similarly the output index fell to 44.6 from April’s 46.1, also the lowest since June 2009.

Earlier data from France and Germany, Europe’s largest economy, showed their manufacturing sectors contracted at the fastest pace in nearly three years. It was only German strength that prevented the euro zone falling into recession in the first quarter.

Italy’s factories contracted for the tenth straight month while in Spain the PMI fell below that of Greece’s, and posted the lowest reading of all the countries surveyed.

The news in Britain, linked inexorably to the fortunes of the euro zone, was little better.

The UK economy is mired in its second recession in two years and its PMI plunged to 45.9 last month, its lowest reading since May 2009 and the second-steepest fall in the survey’s 20-year history. Analysts had expected a more modest dip to 49.8.

The euro zone’s economic deterioration prompted more than a third of economists polled by Reuters this week to say the ECB will cut interest rates from their record 1.0 percent low before the end of the year to boost growth.


China’s Purchasing Managers’ Index fell to 50.4 in May from 53.3 in April, the nation’s statistics bureau and logistics federation said. That compared with the median economist estimate in a Bloomberg News survey for a reading of 52. A separate gauge from HSBC Holdings Plc and Markit Economics showed a seventh straight contraction, the longest since the global financial crisis.


Snap first reading from Thomas Simons of Jefferies & Co., and yes, it does include QE3 chatter: “There are no signs of strength in the establishment survey.  Payrolls were weak and there were downward revisions to the April data.  Earnings were weak and the workweek declined.  Combined with the fact that inflation is now below the target, the chances of the Fed easing at the June 19-20 meeting have just increased.”

I also want to point to a piece we wrote here a while back about seasonality. This has been a much greater predictor of recent data than anything else. The question about data improving late this summer remains unanswered.