The views expressed in this column are those of the author and not SVB Financial Group.
Well if I had money
Tell you what I’d do
I’d go downtown
And buy a Mercury or two.
-K.C. Douglas Trio Pretty soon, you won’t be able to "go downtown and buy a Mercury or two," even if you do still have your job intact.
Last week it was reported that the economy had gained 431,000 jobs in the month of May — a decidedly shocking number any way you look at it — and the unemployment rate had dropped to 9.7 percent. Of course, naysayers are quick to point out that 411,000 of those jobs are census workers who will necessarily be let go in coming months.
From my perspective, it's a good thing we are in a census year to help soften the blow of the nearly eight million jobs lost due to the current downturn, although no one believes these jobs are a long-term fix. Instead, think of them as a cushion to a very challenged job market. If you've recently lost your job and are looking for almost any kind of work, the census program can seem a godsend.
From a macro perspective, these temporary jobs help the economy stabilize, essentially buying time for the true economic recovery to come through. This is how I view ramped-up government spending as well.
The massive government spending that is occurring today not only helps those directly in receipt of funds, but also helps a myriad of business and individuals through the ripple effect of cash flowing through the system. These effects, of course, are only temporary, but they buy time for a true recovery in private spending and investment to occur.
Unfortunately, in both cases, neither represents a structural change that should give hope for continued recovery. Only the private sector can drive growth in this or any other economy. This is why I've paid less attention to government spending (short-term effects) and more to government policy which can affect the economy in a long-term fashion.
Given stock market action, it seems the markets agree with this viewpoint. On Friday, when the employment data were released, the S&P 500 dropped nearly 38 points or 3.4 percent and the 2-year Treasury rate fell 10 basis points.
Key Developments
Construction spending rose by 2.7 percent versus expections for no growth during the month of April. Extra spending by both federal and state governments drove the surprise increase. On a yearly basis, the declines are decreasing at a declining rate which is encouraging.
Worker productivity in the first quarter was revised down to +2.8 percent from +3.4 percent. There was a modest gain in hours worked even though productivity was on the rise. This is evidence employers are squeezing productivity out of their existing workforce before hiring new workers.
Nonfarm payrolls rose 431,000 in May which would typically be viewed as a home run month; however, it was also reported that 411,000 of those new jobs were census workers expected to retain their positions for only a few months. Nonetheless, this was the fifth consecutive monthly gain in payrolls. The unemployment rate edged down to 9.7 percent from 9.8 percent in April.
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