In a normal economic recovery, employment is a trailing indicator. It is one of the last economic statistics to capitulate in a recession and the slowest to return in a recovery. Today's NFP report should be good news.
April's 290,000 overall new jobs and 231,000 in the private sector, both considerably better than the 190,000 and 100,000 expected, are good examples of the tardiness of employment. The economy has been expanding since the third quartet of last year, eight months ago. Notable job creation did not begin until March with 230,000, roughly seven months after GDP turned around.
Hiring is not an instantaneous event. It takes several months, especially after a series of events like the past two years, before an executive is confident enough of business prospects to commit resources to a new employee. The hiring that has taken place in March and April was predicated on economic conditions that have improved since the beginning of the year. The employment decisions taken in January and February reached fruition in March and April. Those improving conditions of the first quarter predate the Greek crisis. They predate the explosion of the crisis in May.
How will the crisis and its ramifications in Europe and around the globe affect the world economy and the United States? We should remember that the sub-prime crisis bubbled along for most of 2007 and 2008 before it became an eruption in the fall of 2008.
The assurances of central bankers and government officials are of limited value. That is what they must say. The Greek and European debt problem does not mean that the financial system is headed for another massive liquidity and confidence crisis. Nevertheless, it does mean that business executives are going to factor in the new situation, including the European crisis, when they make the employment decisions that will determine hiring in June and July. The economic view forward is no longer as positive as it was in mid-January.
Chief Market Analyst