Rates & Stocks Drop On Poor Jobs, New EU Trouble. 41k New Jobs In May, 9.7% Unemployment. (CHARTS)

Currently the Dow is down 225, S&P is down 25, and mortgage bonds are up 59 basis points, bringing rates down by about .125% (and perhaps more if this mortgage bond rally holds) on two factors: (1) Hungary is the latest EU country to announce that their economy is in a very grave situation, and a mass selloff in their bonds again has benefitted U.S. Treasury and mortgage bonds; and (2) The Bureau of Labor Statistics reported that only 41k private payrolls were added to the U.S. economy in May, and expectations were significantly higher. More on the jobs report below.

The Bureau of Labor Statistics non-farm payroll report showed that the economy added 431,000 jobs in May which reflects 411,000 temporary hires of Census workers. Actual new private sector jobs were 41,000. In the Jobs By Sector chart below, you can clearly see the overwhelming weight that the temporary hires had on this month’s jobs report. Estimates called for 500k total jobs added and far fewer Census workers, and this disparity is why the market reaction is bad for stocks and good for rates. The net job loss toll since the recession began in December 2007 at 7.31 million, but April’s mostly private sector gain of 290k jobs wasn’t subject to revision this month, and 2010 is still positing gains instead of the mass losses of the past 2 years. BLS also reported that 15 million people are unemployed. This is a 9.7% unemployment rate, up 4.8% since the recession began in December 2007. See charts and additional commentary on the U.S.’s 8.8m involuntary part-timer workers below.

Additionally there are now 8.8 million people who would like to work full time but are working part time because their hours have been cut or they can’t find full-time jobs. This forced-into-part-time-work category is up 3.9m million since January 2008. It decreased 900k in January (at the time, it was the first decrease in nine months), then increased by 800k in the two months before April, was flat in April, and decreased by 343k in May. This is the fine print of the jobs report—the headline job loss and unemployment statistics show that these 8.8 million people are employed and therefore not in the job loss category, but because of their job status these 8.8 million workers aren’t likely to be consuming at normal levels. This poor statistic in the jobs report is mostly unreported and trading decisions don’t seem to be made on this figure. But until there’s movement here, a sustained recovery seems hard to achieve.
CHART 1: MONTHLY JOB GAIN/LOSS DECEMBER 2007 TO MAY 2010

CHART 2: MAY 2010 JOBS BY SECTOR

CHART 3: JOB LEVELS JANUARY 2000 TO MAY 2010