The state of things after Friday's jobs report: Morning Brief

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Monday, June 7, 2021

Good, but with plenty to worry about. As usual.

"The basic story is of an economy that is recovering well, and which can generally find the workers that it needs," UBS's Paul Donovan said on Friday.

With that single sentence, Donovan does a nice job capturing the state of the economy.

And while some economists and policymakers might have been expecting or perhaps hoping for a more robust pace of recovery at this point, most would agree that growth is at least heading in the right direction.

'Good, but not great'

On Friday, we learned U.S. employers added 559,000 jobs in May, a pickup from the 278,000 jobs added in April.

The report wasn't bad, but it unfortunately fell short of the 675,000 number economists were expecting. And the numbers are still a far cry from 1 million initially expected for the April report.

"This was good, but not great," Bank of America economist Michelle Meyer said. Similarly, JPMorgan economist Michael Feroli wrote, "May jobs report is good enough, but not great."

"It’s hard to hate this report, but it’s also hard to love it," Indeed Hiring Lab economist Nick Bunker said. "Adding over a half million jobs in one month is a solid pace of growth, but we will need to keep up this tempo for quite some time to get back to a semblance of the pre-pandemic labor market."

Importantly, however, most economists seem to agree that the shortfall is largely tied to labor supply issues, which is a far better problem than a lack of demand. Indeed, strong demand for goods and services amid the tight labor market explains why prices for things have been heating up.

'Forecasting is hard'

The factors behind labor supply and the demand for goods and services are unusually complicated right now, making any economic data point incredibly difficult to forecast with any accuracy.

After Friday's jobs report, economist Jason Furman tweeted: "The economy is going through 3 massive shocks, which collectively will make all your forecasts wrong because we've never seen anything like it before: 1. Demand shock (fiscal/monetary stimulus, wage gains); 2. Supply shock (vaccinations); 3. Reallocation shock."

The confluence of these forces has rendered conventional forecasting models almost useless.

"Forecasting is hard because this is not a normal economic cycle (so normal models do not work)," UBS's Donovan said. "Past data will be revised significantly. Seasonal adjustment probably is not working—in April, people were behaving like it was the summer. The explosion of business startups is unlikely to be properly captured in the numbers."

And so maybe it's better to attribute "disappointing" data to faulty forecasting models rather than an economy that's not where it should be.

Nevertheless, none of the recent economic data is quite definitive enough to suppress fears that things could go wrong. Another reminder that clarity always comes with hindsight, forcing stock market investors to endlessly climb the so-called "wall of worry."

Then again, there are "always" some big risks that investors in the financial markets will be worried about. And you can bet there will be more big market sell-offs and unexpected economic shocks up ahead, even in markets where stocks usually go up.

By Sam Ro, managing editor. Follow him at @SamRo

What to watch today

Economy

• 3:00 p.m. ET: Consumer credit, April ($20.5 billion expected, $25.8 billion in March)

Earnings

• 4:00 p.m. ET: Coupa Software (COUP) is expected to report adjusted losses of 19 cents per share on revenue of $152.33 million

• 4:05 p.m. ET: StitchFix (SFIX) is expected to report adjusted losses of 25 cents per share on revenue of $510.71 million

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