With no need for introduction, here's Gluskin-Sheff's David Rosenberg on why the jobs report was even worse than the headlines suggest:

This is probably the first time on record when a 431,000 surge in U.S. nonfarm

payrolls was viewed as a terrible employment report. Perhaps this is because

411,000 of those jobs, or 95% of the tally, were in Census hirings, which

everyone knows are temporary.

Private payrolls were the real key for the market and the consensus was completely giddy believing that we were going to see a +180,000 print today. Instead, we got a putrid 41,000 increase, which is hardly significant in any statistical sense — for once, the ADP survey looked optimistic. And of course, state and local governments are moving aggressively to get their fiscal position back into black ink and that means massive cost cutting. In May, this belt- tightening translated into a 22,000 retrenchment in employment in this part of the economy, which is 50% larger than the federal government.



Not only that, but a big red flag was clearly waved by the Household Survey,

where total employment actually fell 35,000 — the first decline of the year and a

splash of cold water on the widespread view that this recovery was gaining

steam. Note too that the 41,000 increase in private payrolls marked a huge

slowing from +218,000 in April and +158,000 in March, and the diffusion index

sank like a stone, to 54.1% last month from 66.7%, so we have a situation

where nearly half of the universe of employers were either cutting their payrolls

or leaving them stagnant last month. This is not the hallmark of a robust V-

shaped expansion deserving of an 80% rally off the lows, which is what we had

on our hands little more than a month ago. Look for consensus GDP growth and

earnings revisions to start heading down in coming weeks.



The unemployment rate did manage to come down to 9.7% from 9.9% but this

was a pure statistical anomaly owing to the 322,000 plunge in the labour force.

Absent that decline, the headline jobless rate would have actually climbed back

to 10%. The broad U-6 unemployment rate also managed to drop, to 16.6%

from 17.1%, again owing to a sharp decline in the total pool of available labour

last month. (We have no idea where these 504,000 souls wandered off to —

maybe all the students went to camp instead of looking for a job at the gas

station). We also had some new record highs being set:



i) The average duration of unemployment (34.4 weeks from 33.0 weeks in April);

and,

ii) The share of the unemployed ranks who have been out of work now for at

least a half-year (46.0% from 45.9%).



Anytime we have both the employment rate (58.7% from 58.8%) and the

participation rate (65.0% from 65.2%) declining the same month, you know you

have a very soft labour market on your hands.



