Probably the most stunning revelation in the latest Non-Farm Payroll report, aka the ‘Jobs Report’, is that the number of people looking for work is fewer than the number of posted job openings. So, theoretically at least, if everyone seeking a job took one of those available the unemployment rate would drop to zero. Of course, for all manner of reasons, that is not likely to happen but still, the idea that it is a mathematical possibility is a bit mind-numbing.

It’s often said that ‘Job creation is the lifeblood of a country’s economy’ and that’s an idea we believe in.

Here’s another commonly held belief: ‘Government is responsible for job creation’. Conservatives and Liberals alike tend to agree with the words of that phrase. The problem is they each have entirely different concepts of what it means. To many on the political Left it means more people working for more and more government entities and government sponsored programs. To Conservatives it means having government policies that are less restrictive and therefore allow commerce to flourish thus creating economic growth and expanding the need for workers. The current jobs trend should bring a smile to those on the Right as it shows Government hiring added 21,000 positions in the past year but manufacturing added 12 times that; 259,000. Total Non-Farm payrolls are up by 2.4 million in the same period.

According to the Bureau of Labor Statistics April report, the unemployment rate dropped to 3.8%, tying the unemployment rate seen in 1969 – delightfully good news indeed.

But is the rising tide lifting all boats? Happily, the answer is an unqualified ‘yes’.

Black unemployment dropped to another new historical low; it’s now 5.9%. Hispanics are seeing similar performance with a drop to 4.9%. Adult Men are looking great at 3.5% but Adult Women are doing even better with 3.3%. Asians beat everybody at 2.1%.

Our friends Brian Wesbury and Robert Stein, Chief Economist and Deputy Chief Economist respectively at First Trust Advisors, had an in-depth analysis of the report and, with their permission, I’d like to share some of their observations with you:

“There’s evidence that the Labor Department’s measure of wage growth is being held down by the retirement of older, more highly paid Baby Boomers, while new-hire Millennials are just beginning to climb the compensation ladder. So while average hourly earnings for all workers are up 2.7% (not adjusted for inflation), if you take out new entrants and retirees, wage gains are up 3.3% in the past year. We expect this to accelerate, pushing overall wages higher as well.

It’s a tight labor market, with initial claims at the lowest level ever as a percent of total employment and wages rising fast enough to pull people off the disability rolls and back into the job market.

This will help improve the low labor force participation rate. Participation among prime-age workers – those 25-54, who are either working or looking for work – was 81.8% in May, the same as the average for the past year.

To put that in perspective, that’s higher than it ever was before 1986. The averages by decade are 67.4% in the 1950s, 70.0% in the 1960s, 74.2% in the 1970s, 81.1% in the 1980s, 83.7% in the 1990s, and 83.1% in the first decade of the 21st Century. Even the all-time high for any twelve-month period, back in 1998-99, was 84.2%, not substantially higher than it is today.

So, while participation is down from when the U.S. population was younger on average, it’s way up compared to the 1950s-60s, which many view as a strong period for the labor market.

Back in the 1950s and 60s, redistribution of income was well below today’s levels. If the U.S. really wants more people in the labor force it must either reduce government benefits for not working or wait for the private sector to raise wages enough to pull people off government programs. With the recent strength in the labor market, the latter seems more probable. Tax cuts and deregulation will keep the job market strong.”

Market Minute 6-7-2018 — Pollyanna Reporting

A ‘Pollyanna’ is a (somewhat) derogatory depiction of a person who only sees the bright side of a situation.  This morning I must admit that I feel somewhat Pollyana-ish.  I’ve spoken on a number of occasions about not taking the ‘sell in May’ argument too literally, and this May was a good time to be in rather than out of the market- most markets.  With recent headlines such as:

  • Industrials Break Out
  • Healthcare Breaks Out
  • Financials Remain Strong
  • Smallcaps Reach New Highs

…it’s obvious that markets had a happy month.  More specifically, in May the ‘Market’ (as defined by the S&P500 Index) is up about 2.4%.  The ‘growth’ part of the S&P Index is up 4.7%, and the Smallcap world (disclosure: where our emphasis has been) is up about 6.1%.  So, as long as one was not overly allocated to Europe and Emerging markets, May was a pretty good month. 

After that strong a May return, I wouldn’t be surprised to see a bit of a lackluster June, but the charts are still suggesting that it’s a time for being invested, rather than being on the sidelines.  We’ll see.   


Ronald P. Denk, CFP®
Investment Advisor

Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk

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