Non-Farm Payroll Report May 2013

Chart 5-7


April’s Non-Farm Payroll report is a solid set of data that should go a long
way to correcting the unnecessary angst caused by the March report, not least
since that month’s data has now been revised up strongly from 88K to 138K in
Total Payroll and from 95K to 154K in Private Sector gains, making this in
retrospect a normal set of data. This is not the first time this cycle that we
have seen initially weak data revised strongly higher within 30 to 60 days, and
we have to assume that market participants will now start to develop a much
greater resilience to weak payroll data should it be released in future months.

As for April’s report itself, the BLS estimated gains of 165K for Total Payroll
(beating 140K consensus) and 176K for Private Sector gains (150K consensus), in
line with the trailing 12 month ma of 180.5K. It also revised higher the
already very strong February data which now shows gains of 332K Total and 319K
Private Sector gains, making this something of a “blow out” month in retrospect.

The icing on the cake was supplied by the Unemployment Rate falling to 7.5%. As
we had pointed out last month the Household Survey has been unusually poor for
several months making it highly likely that April would supply strong data.
This duly arrived in the form of a 293K monthly gain, which had a predictable
effect on the Unemployment rate. As the attached chart shows, Unemployment
remains in a well-defined declining trend which is on track to take the rate to
6.5% around this time next year, approximately 18 months ahead of the FOMC’s
tardy schedule. Perhaps a more relevant time period is Q3 2013 when the rate
may well be pushing against the 7.0% level, which we suspect would be the point
at which the bond market starts to exhibit clear concern that the FOMC has been
way behind the curve in its assumptions and actions.

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