Labor Review: Context for the May Labor Report
Friday’s employment report from the Bureau of Labor Statistics (BLS) shows very weak job growth for the month of May. Nonfarm payroll job numbers grew a mere 38,000, a paltry number compared to growth expectations of 123,000. Private payrolls grew an even smaller 25,000. On the household survey, the unemployment rate fell to 4.7%, largely reflecting a significant number of unemployed workers dropping out of the labor force (-484,000) and a small increase in employed workers (+26,000). The labor force participation rate fell 0.2 percentage point to 62.6%. On the establishment survey, nonfarm payroll job growth was revised down from 208,000 for April to 186,000, and down a combined 59,000 for March (third estimate) and April (second estimate).
May Jobs Report Data |
Previous April Data |
Revised April Data |
May Forecast |
May Data |
Establishment Survey |
|
|
|
|
Nonfarm Payrolls Change |
160,000 |
123,000 |
158,000 |
38,000 |
Private Payrolls Change |
171,000 |
130,000 |
150,000 |
25,000 |
Average hourly earnings (% chg.) |
0.3% |
0.4% |
0.2% |
0.2% |
Household Survey |
|
|
|
|
Unemployment Rate (U-3) |
5.0% |
5.0% |
4.9% |
4.7% |
“True” Unemployment Rate (U-6) |
9.7% |
9.7% |
- |
9.7% |
Labor Force Participation Rate (%) |
62.8% |
62.8% |
- |
62.6% |
16-64 years old |
73.0% |
73.0% |
- |
72.7% |
25-54 years old |
81.2% |
81.2% |
- |
81.0% |
Employment to Population Ratio (%) |
59.7% |
59.7% |
- |
59.7% |
Labor Force Change |
-362,000 |
-362,000 |
- |
-458,000 |
Population Growth (16+ years old) |
201,000 |
201,000 |
- |
205,000 |
Source: BLS, BEA, Bloomberg Econoday
LABOR TRENDS FOR WORKERS, JOB SEEKERS AND FAMILIES
THE BIGGER PICTURE
The Wall Street Journal recently reported that since 2007, job growth occurred within a broad range of fairly low-wage sectors, including the food and beverage services industry (+17%) and home-health care services (+48%). At the same time, many of the declining industries have been middle wage, including specialty trade contractors (-10%). Higher-wage industries have seen growth as well, including computer system design and other information services. Still, although on a declining trend since the recession, more people work minimum wage or involuntarily part-time than was the case a decade ago.
- In light of the increased discussion of developments in automation, the Joint Economic Committee recently held a hearing, entitled “The Transformative Impact of Robots and Automation,” in which witness Andrew McAfee noted that entrepreneurs are facing an “increasingly dense thicket of things that an employer or worker has to confront before they can start something up. And navigating your way through that becomes increasingly difficult, and it looks like more and more people are saying, ‘I’m just not going to bother with it’.” McAfee lauded the Silicon Valley notion of “permissionless innovation,” which argues for greater ability to innovate without submitting to a bureaucracy or permitting process before proceeding. Read more on automation in the JEC Republican staff analysis, “Domo Arigato, Mr. Roboto: The Transformative Impact of Automation.”
- In the meantime, hiring at temporary staffing agencies appears to be slowing down so far in 2016, potentially signaling a broader job-market slowdown ahead, as had been the case ahead of the past two recessions. Many look to this particular area in the job market as a leading indicator of cautionary business moves, and it is usually the first place that jobs are lost. Thus far, 27,400 temporary jobs have been lost since December 2015, but the trend reversed slightly in April with some job gains. Though this area remains difficult to read, many analysts will pay attention to it over the coming months.
- Federal Reserve Chair Janet Yellen had hinted at a summer federal funds rate hike, provided that the jobs numbers remove doubt of the economy’s continued recovery. However, Friday’s report has given many analysts pause on expectations for a June rate hike. Indeed, Bloomberg noted that the chance that Fed officials would announce an increase in the federal funds target rate in their June 14-15 meeting “all but evaporated” and may make it difficult to justify a rate increase in July.
UNDERLYING DETAILS
As aforementioned, though a strike comprising roughly 35,000 telecommunications workers in the month of May resulted in a decline of 34,000 in the information sector, overall the employment report was still quite weak in both the establishment and household surveys.
- BLS reports from the establishment survey that goods-producing jobs fell by 36,000 in May. Among goods-producing industries, durable goods manufacturing jobs fell by 18,000 while payrolls also declined 11,000 in mining and logging, which include oil and gas extraction jobs. Private service-providing jobs grew by only 61,000, with the largest gains in education and health services (+67,000), and government (+13,000). Professional and business services, which has recently shown stronger growth in payroll numbers, grew by only 10,000, with the aforementioned temporary help services declining by 21,000 in May. The Challenger Job Cuts report for May revealed that U.S. employers announced 30,157 payroll cuts, roughly half of April’s job cuts.
- This month’s household employment numbers also reveal that full-time employment fell again in May, and is currently below its January 2016 level. In contrast, part-time employment has continued to grow, adding 577,000 over 2016 thus far. In addition, employment for prime-age workers (age 25-54) is also below its April level. The labor force shrank across all age groups.
- ADP’s National Employment Report estimates that private-sector employment increased 173,000 in May, with the largest employment gains in the service-providing sector, rising 175,000. Goods-producing jobs fell by 1,000. ADP’s employment numbers, though useful, are not necessarily a reliable predictor for actual payroll jobs numbers released by the BLS.
- The ISM manufacturing survey for May indicated that the manufacturing sector expanded for a third consecutive month. However, the employment index remained in contractionary territory at 49.2%, the same reading as April.
The next BLS employment situation report for initial June employment numbers and revisions for April and May data are scheduled for release on Friday, July 8, 2016, at 8:30 a.m. ET.