With so much of the recent labor market discourse focusing on widespread shortages resulting from Uncle Sam's generous unemployment benefits (15 million people still collecting some form of weekly unemployment benefit), today's jobs report which is expected to show a substantial rebound from April's big miss, was set to be defining: another big miss and the shortage narrative would dominate for a long time, a big beat would meanwhile spark renewed reflation worries.
Well, it appears that "shortages" won out in the end because moments ago the BLS reported that in April just 559K jobs were added, which while a big improvement to April's upward revised 278K...
... was another big miss compared to the 675K expectations.
While the miss was material, it was within the range of expectations, less than 1 SD compared to consensus, and far less pronounced than last month's miss.
The change in total nonfarm payroll employment for March was revised up by 15,000, from +770,000 to +785,000, and the change for April was revised up by 12,000, from +266,000 to +278,000. With these revisions, employment in March and April combined was a modest 27,000 higher than previously reported.
Nonfarm payroll employment is now down by 7.6 million, or 5.0%, from its pre-pandemic level in February 2020. Notable job gains occurred in leisure and hospitality, in public and private education, and in health care and social assistance in May.
The offset to the headline miss is that the unemployment rate dropped from 6.1% to 5.8%, coming below expectations of 5.9%, and reversing last month's modest increase.
Yet digging into the numbers reveals another potential problem: the reason why the unemployment rate fell is that 160,000 people left the labor force in May. That's not what you’d like to see in an economic recovery. Ideally, you see businesses reopening, encouraging people to start looking for work again.
Among the major worker groups, the unemployment rates declined in May for teenagers (9.6 percent), Whites (5.1 percent), and Hispanics (7.3 percent). The jobless rates for adult men (5.9 percent), adult women (5.4 percent), Blacks (9.1 percent), and Asians (5.5
percent) showed little change in May.
Among the unemployed, the number of persons on temporary layoff declined by 291,000 to 1.8 million in May. This measure is down considerably from the recent high of 18.0 million in April 2020 but is 1.1 million higher than in February 2020. The number of permanent job losers decreased by 295,000 to 3.2 million in May but is 1.9 million higher than in February 2020.
The labor force participation rate also dropped to 61.6% in May from 61.8%, having remained within a narrow range of 61.4 percent to 61.7 percent since June 2020. The participation rate is 1.7% points lower than in February 2020. The employment-population ratio, at 58.0 percent, was also little changed in May but is up by 0.6 percentage point since December 2020. However, this measure is 3.1 percentage points below its February 2020 level.
The number of persons not in the labor force who currently want a job was essentially unchanged over the month at 6.6 million but is up by 1.6 million since February 2020. These individuals were not counted as unemployed because they were not actively looking for work during the last 4 weeks or were unavailable to take a job.
Among those not in the labor force who currently want a job, the number of persons marginally attached to the labor force, at 2.0 million, changed little in May but is up by 518,000 since February 2020. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months but had not looked for work in the 4 weeks preceding the survey. The number of discouraged workers, a subset of the marginally attached who believed that no jobs were available for them, was 600,000 in May, little changed from the previous month but 199,000 higher than in February 2020.
And another notable fact: in May, 7.9 million persons reported that they had been unable to work because their employer closed or lost business due to the pandemic.
The number of persons jobless less than 5 weeks declined by 391,000 to 2.0 million. The number of long-term unemployed (those jobless for 27 weeks or more) declined by 431,000 to 3.8 million in May but is 2.6 million higher than in February 2020. These long-term unemployed accounted for 40.9 percent of the total unemployed in May.
There was more good news on the wage front, where average hourly earnings rose from 0.4% to 2.0%, beating expectations of 1.6%.
Average hourly earnings for all employees on private nonfarm payrolls increased by 15 cents to $30.33 in May, following an increase of 21 cents in April. Average hourly earnings of private-sector production and nonsupervisory employees rose by 14 cents to $25.60 in May, following an increase of 19 cents in April. The data for the last 2 months suggest that the rising demand for labor associated with the recovery from the pandemic may have put upward pressure on wages. However, because average hourly earnings vary widely across industries, the large employment fluctuations since February 2020 complicate the analysis of recent trends in average hourly earnings.
In May, the average workweek for all employees on private nonfarm payrolls was 34.9 hours for the third month in a row. In manufacturing, the average workweek rose by 0.1 hour to 40.5 hours, and overtime increased by 0.1 hour to 3.3 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls declined by 0.1 hour to 34.3 hours.
A breakdown of jobs by sector:
- Employment in leisure and hospitality increased by 292,000, as pandemic-related restrictions continued to ease in some parts of the country. Nearly two-thirds of the increase was in food services and drinking places (+186,000), i.e. waiters and bartenders. Employment also rose in amusements, gambling, and recreation (+58,000) and in accommodation (+35,000). Employment in leisure and hospitality is down by 2.5 million, or 15.0 percent, from its level in February 2020.
- Employment increased in public and private education, reflecting the continued resumption of in-person learning and other school-related activities in some parts of the country. Employment rose by 53,000 in local government education, by 50,000 in state government education, and by 41,000 in private education. However, employment is down from February 2020 levels in local government education (-556,000), state government education (-244,000), and private education (-293,000).
- Health care and social assistance added 46,000 jobs in May. Employment in health care continued to trend up (+23,000), reflecting a gain in ambulatory health care services (+22,000). Social assistance added 23,000 jobs over the month, largely in child day care services (+18,000). Compared with February 2020, employment is down by 508,000 in health care and by 257,000 in social assistance.
- Employment in information rose by 29,000 over the month but is down by 193,000 since February 2020. In May, job gains occurred in motion picture and sound recording industries (+14,000).
- Manufacturing employment rose by 23,000 in May. A job gain in motor vehicles and parts (+25,000) followed a loss in April (-38,000). Employment in manufacturing is down by 509,000 from its level in February 2020.
- Transportation and warehousing added 23,000 jobs in May. Employment increased in support activities for transportation (+10,000) and in air transportation (+9,000). Since February 2020, employment in transportation and warehousing is down by 100,000.
- Employment in wholesale trade increased by 20,000 in May, mostly in the durable goods component (+14,000).
- Construction employment edged down in May (-20,000), reflecting a job loss in nonresidential specialty trade contractors (-17,000). Employment in construction is 225,000 lower than in February 2020.
- Employment in professional and business services changed little in May (+35,000). Within the industry, employment continued to trend up in accounting and bookkeeping services (+14,000). Employment in temporary help services changed little over the month (+4,000), following a large decline in April (-116,000). Overall, employment in professional and business services is down by 708,000 since February 2020.
- Employment in retail trade changed little in May (-6,000). Clothing and clothing accessories stores added 11,000 jobs. Employment in food and beverage stores decreased by 26,000, following a decline of 47,000 in April. Employment in retail trade is 411,000 below its February 2020 level.
- Employment changed little in other major industries, including mining, financial activities, and other services.
Bottom line: a stronger jobs report, but still far below where it needs to be for the Fed to concede that the labor market is normalizing. And, of course, the paradox is that this is mostly due to the government's generous handouts as CIBC economist Katherine Judge wrote:
“Our research suggests that generous unemployment benefit supplements have been the main factor holding employment gains back amidst record levels of job openings, but with many states moving to end the supplements in June, we expect millions of jobs to be added over the summer months.”
Still, Judge said she expects that a pick-up in job growth over the summer should be “enough to allow the Fed to announce at its September meeting a tapering of QE to start in early 2022.”
FX strategist Viraj Patel was not so sure: commenting on the jobs report, he said that the "modest NFP gains of +559k will be a disappointment for Fed hawkish expectations. $USD weaker across the board as US rates drop. Likely that the wage inflation will be ignored due to distortions but a mixed bag overall with participation rate lower. Only +ve is U-6 rate down."
Bloomberg's Chris Antsey agrees with this skeptical view, saying that the Fed’s leadership "is likely to see this report as a modest improvement but not near the “substantial further progress” on employment required to taper its bond-buying program. While inflation is now topping the central bank’s 2% goal, jobs remain not really close to the goal."
Finally, the political blowback will be big: as Bloomberg notes, Republican lawmakers will immediately "hit the Biden administration for the extension of the supplemental $300-a-week unemployment benefits included in the $1.9 trillion pandemic-relief bill", which they correctly argue that’s what’s stopping some people from taking jobs; people can earn more or at least as much just sitting at home and collecting benefits. Expect Biden to rebut that argument when he speaks about these numbers later this morning.