Investors gave this morning’s release of employment figures for May an emphatic thumbs down, as the S&P 500 declined 3.44%. One might think this is somewhat curious, given that earlier in the week, President Obama said, “We expect to see strong growth in Friday’s report.”  Leaving aside the question of whether the President should comment on important economic data before it is released to the public, why were investors so disappointed in a headline reading “payrolls increased by 431,000 in May”?  Let’s look at the details.

While there were in fact 431,000 jobs created in May, by far the highest monthly number since well before the recession, the figure was hugely inflated by temporary hiring of 411,000 census workers.  Private payrolls expanded only 41,000, prior months’ payrolls were revised down -22,000, and household employment fell -35,000.  Well, there you have it: the market was expecting a strong report from the private sector, and instead received a tepid one.  Of course, with weekly unemployment claims remaining well above 400,000, we have expected a slower recovery in the job market than have the many cheerleaders in the media.

Markets are likely to remain volatile in the near term, driven more by daily headlines from Europe and the Gulf of Mexico than by fundamental economic and company data, which incidentally continue to show recovery (despite today’s jobs report).  Kanaly’s conservative portfolio positioning continues to help protect capital in this environment.  The 30% equity allocation is skewed to high quality, defensive companies with limited exposure to Europe, and our alternative investments and energy master limited partnerships are strongly outperforming.  Finally, our positions in the U.S. Dollar and gold continue to appreciate due to global uncertainty and deflationary pressures.


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