There was a lot of important information on the U.S. economy released this week but the biggest data point is without a doubt the latest monthly job report from the Bureau of Labor Statistics (BLS) out this morning. Indeed, total nonfarm employment in America rose by 38K payrolls in May, significantly worse than the +158K consensus estimate and the smallest month-over-month increase since 2010. The Verizon strike clearly dragged on last month’s headline payrolls figure because telecom jobs contracted by 37K in May. There were also large downward revisions (-59K in total) to the March and April figures which helped pull down the 3-month average payrolls gain to +116K. That is the lowest reading for this less-volatile metric since 2012 but still above, albeit barely, many Fed officials’ estimates for the pace of job creation in America needed to keep up with population growth. Further, May’s small payrolls gain still resulted in the 68th consecutive month of net job creation, the longest such streak in U.S. history.
The official unemployment rate (U-3) fell to 4.7 percent in May, a recovery low, and the underemployment rate (U-6) held at 9.7 percent. The U-3 decline was largely due to a sharp drop in the civilian labor force participation rate from 62.8 percent to 62.6 percent, the lowest reading since December. However, the reduction in the participation rate occurred predominately among people with less than a high school diploma, while the other education categorizes experienced labor force increases in May. Other highlights include that the unemployment rate for African-Americans fell from 8.8% to 8.2%, the lowest level since 2007, and the construction unemployment rate slid to 5.2 percent, the best reading since 2000 but payrolls growth in this sector has slowed substantially in recent months. Elsewhere, the number of long-term unemployed Americans fell by 178K in May, a welcome continuation from April’s 150K decline, and the bulk of the household employment gains last month occurred in the 25-44 age group.
A clear negative from last month’s job report is that full-time jobs as a percentage of total jobs fell on a year-over-year basis for the first time in three years. Further, only half of U.S. industries added to their headcounts in May, marking for the worst month for breadth of job gains since 2010. On the bright side, average hourly earnings rose by 0.2 percent last month, in line with estimates, and April’s growth rate was revised higher to 0.4 percent. By most measures, though, this was overall a very disappointing job report which together with the uncertainty surrounding the upcoming Brexit vote should make a June rate hike a lot less likely. In fact, the market-implied expectations for the next interest rate increase from the Fed shifted from July all the way out to December immediately after the release of this morning’s payrolls data. Michael Feroli, chief U.S. economist at J.P. Morgan, added that “The slowdown in job growth looks pretty pervasive across industries. It raises some questions about the momentum of growth and about the outlook. The easy thing to say is, this takes June off the table for a Fed hike. To get to July, we’re going to need a pretty nice rebound in the data.”
Sources: Econoday, Twitter, Bloomberg, WSJ, ZH, CNBC, U.S. DoL, FRBSLPost author: Charles Couch