Saturday, June 7, 2008

May Employment Report Spooks the Market

by Nancy Osborne, COO of ERATE

The Labor Department reported on Friday that payrolls in the month of May fell by 49,000 as job losses continued for the fifth consecutive month, now totaling 324,000 for the year. The unemployment rate rose a surprising half a percent from 5.0% in April to 5.5% in May, reflecting the biggest month over month increase since 1986. The number of unemployed grew to 8.5 million in contrast with this time a year ago when the unemployment totals stood at 6.9 million. The impact of the housing and credit crisis is continuing to take its toll on the economy yet skyrocketing energy prices are a significant culprit as well. Most Americans are being hit from both sides as the value of their home is declining just as other expenses are rising resulting in a drop off in consumer spending leading to a further loss of jobs.

The percentage increase in the unemployment rate was sharper than analysts had anticipated, as most had expected a job loss of closer to 60,000 rather than the 49,000 reported. Many teenage students reported entering the workforce and this may have resulted in a seasonal deviation in the report as teen unemployment experienced its biggest spike since 1948. May's employment report was therefore greatly impacted by both new entrants as well as re-entrants coming into the labor pool. Job growth continues to remain fairly robust in the areas of healthcare, education and government hiring. However the jobless rate overall now stands at the highest level since October of 2004. The Dow fell 395 points or 3.13%, the NASDAQ dropped 75 points or 2.96%, while the S&P 500 fell 43 points or 3.09%, sustaining the sharpest sell-off in three months.

Mortgage Rates improved as investors shifted out of stocks. This could be an opportunity to lock in a low fixed rate.

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