5 THINGS WE LEARNED FROM THE MAY JOBS REPORT

Markets ended lower last week as investors balanced an optimistic jobs report against renewed concerns about a Greek debt default. For the week, the S&P 500 lost 0.69%, the Dow fell 0.90%, and the NASDAQ slid 0.03%.^[1]

On Friday, we got a look at how the labor market did in May. After jobs growth stuttered in the first quarter, investors were looking for reassurance that the economy can still support hiring. Here are three good things and two not-so-good things that we learned:

The economy created 280,000 new jobs in May, beating expectations and leaving economists feeling optimistic about growth this quarter.^[2]
The unemployment rate ticked upward to 5.5%, but that’s mostly a result of an increase in the number of people looking for jobs. A higher labor force participation rate is a good sign because it means people are feeling confident enough in job opportunities to go looking, so we’ll count this one as a positive.^[3]
Lagging wage growth, which has concerned economists, appears to be reversing with U.S. workers adding $0.08/hour to their paychecks last month. Wage growth over the last three months is much closer to the 3.0% we’ve seen in past economic recoveries.^[4] Since economic growth depends heavily on consumer spending, we can hope that bigger paychecks will translate into a greater willingness to spend.
In the not-so-great category, we learned that the majority of the new jobs created were in low-paying industries like retail, hospitality, temp work, home health services, etc.^[5] Though we’re seeing an uptick in full-time work, many Americans are still struggling to find good-paying jobs, which may limit their ability to qualify for a mortgage and make big-ticket purchases.
Productivity, measured in output per worker hour, registered a dismal 0.3% increase last month. Productivity is a major factor in long-term economic growth, and low labor productivity could be a warning sign. Is it cause for worry?

Probably not. Productivity is often tied to wages – higher wages have been seen to boost worker productivity – so we can hope that wage increases will boost output. There are also some economists who argue that the way productivity is estimated doesn’t account for technological improvements and shifts in the ways Americans work today.^[6]

Looking ahead, investors will be watching Greek debt negotiations closely to see whether creditors will bow to hardline Greek demands for loans without austerity measures, or whether they will allow debt-laden Greece to slide into default. We’ll also get a look at the latest retail sales and business inventories data, which will show us how consumers and businesses are spending this quarter.

ECONOMIC CALENDAR:

Tuesday: JOLTS
Wednesday: EIA Petroleum Status Report, Treasury Budget
Thursday: Jobless Claims, Retail Sales, Import and Export Prices, Business Inventories
Friday: PPI-FD, Consumer Sentiment

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

HEADLINES:

Greece delays debt payment to International Monetary Fund. Greece postponed a payment due Friday until the end of June. A government leader declared that Greece might hold snap elections to choose a new government.^[7]

American Pharoah wins Triple Crown at Belmont Stakes. The horse previously won the Kentucky Derby and Preakness races, bringing home the elusive Triple Crown for the first time since 1978.^[8]

Oil settles up on lower rig count. Oil prices jumped Friday, sending domestic prices close to $60/barrel when an industry report showed that the number of U.S. drilling rigs fell for the 26th week in a row.^[9]

Mortgage rates remain high. Interest rates on 30-year fixed mortgages remained at 3.87% for the second week in a row, reaching the highest level since late 2014. High rates may curb housing market activity this season.^[10]

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