Jobs report clearly beat, but does not change the story

Yesterday’s April employment report from the BLS was clearly a beat.  It was less weak than expected, especially in ways of most direct interest to market participants.

Moreover, with social distancing now being lifted, a recovery of demand and production is probably imminent, if not already begun.  For the next while, the real-time growth numbers themselves may look quite strong, perhaps even V like. For the government data, we will have to wait a month or so before the turn is pervasive in the reports.

However, I see little reason to move away from my long-standing view that the recovery in level terms will be slow and staggered, especially after the initial social gathering bounce.  And durably-compressed cash flows will provide fertile ground for financial accidents over the coming quarters.

In the attached report, I document in some detail how the employment report was a beat, especially in practical terms of interest to investors.  I also develop a broader and slightly darker picture of where the labor market is, by incorporating the signal from the claims data and an alternative measure of labor market performance, specifically the ADP-FRB approach.

I conclude with a brief discussion of cyclical knock-ons from the first-wave COVID shock and references a couple interesting blog posts from “economists”, whose speculations fit neatly into the slow-recovery thesis.

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