Payrolls Fall Less Than Estimates, Unemployment Rises, Earnings Accelerate, Wholesale Inventories at Record Low

- The Change in Non-farm Payrolls for May was -49K versus estimates of -60K and -28K in April.

- The Unemployment Rate for May rose to 5.5% versus estimates of 5.1% and 5.0% in April.

- Average Hourly Earnings for May rose .3% versus estimates of a .2% gain and a .1% increase in April.

- Wholesale Inventories for April rose 1.3% versus estimates of a .4% gain and a .1% increase in March.

BOTTOM LINE: The decline in non-farm payrolls was slightly less than economists had expected and the unemployment rate rose more than expectations, Bloomberg reported. Payrolls at builders fell 34,000 versus a 52,000 decline the prior month. Financial firms pared payrolls by 1,000 versus a 1,000 gain the prior month. Service industries, which include banks, insurance companies, restaurants and retailers, added 8,000 workers. The rise in the unemployment rate, due to an apparent surge in teenage unemployment, is surprising given the other data I analyze. However, it is still around the 20-year average of 5.4%. Moreover, Average Hourly Earnings are growing at a healthy 3.5% rate year-over-year versus the 20-year average of 3.3%. I still expect the job market to improve modestly through year-end.

Inventories at US wholesalers rose more than forecast in April, led by a surge in petroleum and metals, Bloomberg reported. Sales jumped 1.4% after climbing 1.8% in March. Distributors had enough goods on hand to last 1.09 months at the current sales pace, matching the record low set in November of last year. The increase in wholesale inventories was led by an 8.8% jump in petroleum, the largest since January 2006, and a 2.9% increase in metals, the most in more than a year. I still expect inventory rebuilding to help add to overall economic growth through year-end. The US Dollar Index is falling .7% and the 10-year yield is declining 12 basis points on today’s news. However, these declines, along with today’s stock market decline, are mainly the result of the sharp increase in oil. Despite some saber-rattling talk from an Israeli deputy regarding an attack on Iran, the Intrade.com odds of a US and/or Israeli air strike on Iran before year-end are just 27%, which is down from 50% in April. In my opinion, the recent spike in oil is mainly the result of the perception by traders that Congress is going to doing a lot of talking, but will intentionally refrain from any meaningful actions that would prick the commodities bubble. We are at the point that the odds of a severe global slowdown, or even contraction, rise with every uptick in crude from current levels. I continue to believe a bursting of the commodity bubble will lead to substantially higher US stock prices over the intermediate/long-run.