June 5, 2020 / 1:05 PM / a month ago

Surprise May U.S. payrolls rise fans hopes for economic recovery

(Reuters) - The U.S. unemployment rate unexpectedly fell in May and layoffs abated, the Labor Department said on Friday in a report that showed the latest signs the economic downturn caused by the COVID-19 pandemic was bottoming.

FILE PHOTO: A "We're Hiring" sign advertising jobs is seen at the entrance of a restaurant, as Miami-Dade County eases some of the lockdown measures put in place during the coronavirus disease (COVID-19) outbreak, in Miami, Florida, U.S., May 18, 2020. REUTERS/Marco Bello/File Photo

The Labor Department’s closely watched monthly employment report showed the jobless rate dropped to 13.3% last month from 14.7% in April. Nonfarm payrolls rose by 2.509 million jobs after a record plunge of 20.687 million in April.

MARKET REACTION:

STOCKS: S&P 500 stock index futures EScv1 surged, last up 2%, pointing to a higher openBONDS: Yields on the U.S. 10-year Treasury US10YT=RR surged to 0.9252% and two-year yields US2YT=RR rose to 0.2220%FOREX: The US Dollar Index =USD turned higher, last up 0.085%

COMMENTS:

SAMEER SAMANA, SENIOR GLOBAL MARKET STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE, ST LOUIS (emailed)

  “Payrolls growth came in well ahead of expectations, and showed growth, while most were expecting another sharp loss.”

  “The rebound was confirmed by a bounce-back in weekly hours, participation rate, and manufacturing and private job growth.”

  “The unemployment and underemployment rates also seem to have peaked.”

“If confirmed by readings in the coming months, this would suggest the worst is over for the labor market, which would be a positive for the consumer, consumption, and economic growth, which we expect to trough in the second quarter.”

“Stocks, rates, and the U.S. dollar rose, while gold fell, which tells us that equity markets may have further to run in the near-term.”

JON HILL, INTEREST RATE STRATEGIST, BMO CAPITAL MARKETS, NEW YORK

“It’s causing a classic pro-growth shock into financial markets. But the reality is ADP printed deeply negative, ISM manufacturing employment showed further declines, ISM non-manufacturing employment showed further declines. So the NFP figure seems to be the outlier, which I think is one of the reasons why it’s been greeted with cautious optimism.”

PATRICK LEARY, CHIEF MARKET STRATEGIST, INCAPITAL, MINNEAPOLIS

    “The jobs report was very encouraging to say the least. I was expecting a better-than-expected number, but nothing like we’re showing actual job gains. It doesn’t jive with the weekly claims though. Something seems off. But however you slice it, this a good number.”

    “If it’s related to PPP (payroll protection program), that’s okay, which means the program worked. The question is when do we hand off to the real numbers, but even we had some giveback for June, the overall tone is positive.”

JIM PAULSEN, CHIEF INVESTMENT STRATEGIST AT THE LEUTHOLD GROUP IN MINNEAPOLIS

    “There was discussion about whether people would be slow to go back because they’re receiving unemployment benefits that they’ll wait until they run out. It doesn’t’ seem like people did that. If there was a job available they took it.”

    “It’s a pretty big turnaround. We’re left still with very terrible numbers, a 13.3% unemployment rate. It’s not like we’re back to normal but that’s a big turn and a big unexpected turn.”

    “People were suffering. If they had a job, they a family, kids at home, bills to pay. They’re scared. They finally get a call they can go back to work, they’d take it.”

    “Across the financial markets is the same message today. It’s a V recovery message. We’ll see if it lasts.”

MICHAEL ARONE, CHIEF INVESTMENT STRATEGIST, STATE STREET GLOBAL ADVISORS, BOSTON

“As the economy reopens there are industries that require an element of human interaction, these are in hospitality, in particular. This suggests to me as the economy reopens and folks are interacting more, these jobs are coming back online. For any of the naysayers out there looking for some type of distraction, there’s very little in this report. But transportation continues to suffer losses, suggests ships aren’t moving around as quickly. That would be one I’d be looking to improve going forward, it would suggest a further confirmation the economy is coming back online.

“Most folks were expecting the unemployment rate to reach that 20% threshold, to near that Depression-era levels. It looks like that’s been avoided and it looks like the unemployment number, which declined, looks like its headed in the other direction. This is a strong signal that the effects are temporary and that the economy is improving. Long may it last.”

JUSTIN HOOGENDOORN, HEAD OF FIXED INCOME STRATEGIC ANALYTICS GROUP, PIPER SANDLER, CHICAGO

    “That is certainly what everyone was hoping for. That we could be hitting that turn.”

    “It could actually create more volatility within the Treasury market. The Fed was pressing yields lower. You can get more volatility when you have something pushing them higher. A good economic number like we haven’t seen in a long time at least that can give it that two-way street, which is going to feel a little bit worse with volatility, but it’s probably healthy for the market.”

SUBADRA RAJAPPA, HEAD OF U.S. RATES STRATEGY, SOCIETE GENERALE, NEW YORK

“This is completely out of expectations. The sell-off in the bond market in the last few weeks seems to justified. This is a tremendously positive step in the right direction, and probably points to a faster recovery, at least in the jobs market, than people had expected.”

TIM GHRISKEY,  CHIEF INVESTMENT STRATEGIST AT INVERNESS COUNSEL IN NEW YORK

“Are the furloughed unemployed or not? It seems too strange to me, I need more details but from what I see it’s bizarre. At face value, April was the low and companies hired massively in May. It’s perplexing.”

“The devil’s in the details, the market has bounced on the news and on the face of it, it’s positive. We need to better understand the data.”

JJ KINAHAN, CHIEF MARKET STRATEGIST, TD AMERITRADE, CHICAGO

“It’s amazing. Everyone is like ‘why is the market coming back so quickly?’ and I think what we are seeing is the states that are open, people have gotten back to work really, really quickly. Construction is amazing, healthcare is the one that didn’t really surprise me so much because I expected the doctors and dentist offices reopening earlier this month. I was not as surprised by that and child daycare. Retail trade was a surprise to me, it makes sense because in some of the states the stores reopened. And the hospitality industry, that was good to see that one pick up. All in all maybe a little bit faster than expected but I think we all expected this to come back.”

“The other thing you can’t let go here is the 10-year. It is now flirting with 100 basis points, S&P (futures) doubled, and so did the loss in bonds. So that is good for rates. There is a lot of people being like ‘wow! This is pretty positive.’ With us being so awash in cash from the Fed, I don’t think anybody was expecting rates to do this. And when you have the second largest sector in the S&P 500 really reliant on rates and they are performing like you need them to, good things can happen.”

Compiled by Ira Iosebashvili

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