The MST Econ-Blog: Update on Key Economic Variables
June 2016
Guest blog by Economist Tom Cunningham
Unemployment is one of the major economic variables you might consider as you project future portfolio performance under the new CECL allowance accounting standard. The MST Econ-Blog will feature information on key economic indicators and help you prepare to use them in your economic forecasts. Just as the MST Virtual Economist will help you find and track a wide set of economic variables and understand how relevant metrics will influence your portfolio performance.
Does one month a trend make? No, but the Bureau of Labor Statistics’ (BLS) report of just 38,000 new U.S. jobs for May was disappointing, especially in light of expectations in the 160,000 range. As well, the BLS adjusted downward earlier new job estimates for March and April, the three months combining for a sharp slowdown from the previous 12 months.
The net May jobs number was depressed by a strike at Verizon, which took over 30,000 jobs off the total, but that was not sufficient to explain the fundamentally flat number. Mining continued to lose jobs. The only sector showing a significant gain was healthcare.
The headline unemployment rate, issued as “U3” by the BLS, declined from 5.0% to 4.7%. The labor force declined slightly and those employed part-time for economic reasons increased. These factors show up in the broader measure of labor underutilization, “U6,” which was unchanged for the month at 9.7%. Click here to access the BLS release. State by state labor statistics are important to track as well. Click here for the most recent BLS state release (April 2016).
U3 Unemployment Rate (Source: FRED https://research.stlouisfed.org/fred2/series/UNRATE )
U6 Unemployment Rate (Source: FRED https://research.stlouisfed.org/fred2/series/U6RATE )
It is a weak report. The only bright spot, the decline in headline unemployment, does not look particularly good upon closer inspection, and the essentially flat jobs numbers are disconcerting.
Still, the latest reports on consumption are strong, and there have been some decent employment numbers over the past year. A variety of numbers should be considered together and viewed over extended periods.
Overall, May’s weak jobs report is one more spoke in the wheel of uncertainty in which our economy spins, driven not only by what’s going on in the U.S., but globally, especially the Eurozone, where structural issues are being exacerbated by Great Britain’s threat to withdraw from the European Union.
Example of Economic Data tracked with a loan portfolio. Source: MST Virtual Economist
To learn more about the Virtual Economist, click here.
