U.S. Jobs: Surprisingly Strong Report Hampered by Unemployment Surge

The latest Employment Situation Summary from the U.S. Bureau of Labor Statistics arrived this morning, bearing a higher-than-usual number of surprises in its data sets. Right off the bat, the eye-opening 339,000 jobs added outstrips the consensus forecast from labor economists of roughly 200,000 jobs added by nearly 50 percent.

‍

That comes as a pleasant surprise as an indicator that strong job growth continues. Indeed, the trailing three-month period reverses the downward slope you can see on the trend line extending back to July 2022 — if you overlook the spike in January (see the graph at the head of this Washington Post story for details). That 3-month trailing average comes to 283,000, and shows a decent month-over-month increment (more than 60,000) in the period.

‍

At the same time, unemployment spiked in May, jumping from a near-historic low that extends back to 1969 of 3.4 percent, all the way up to 3.7 percent. This swells the ranks of the unemployed by around 440,000, and appears to signal that strong job growth may be slowing down soon, if not stalling out entirely.

‍

That said, around half those job losses came from layoffs (which typically indicate companies trimming staff to adjust to declining demands for goods or services) or temporary positions ending (often used to add capacity during peak periods, then let go as those peaks subside). It looks like the supply of workers will be more likely to meet demand in the months to come, after an extended period of tight supply as the number of open jobs outmatches available workers.

‍

Average wages were also up in May by 11 cents per hour (0.3 percent) to $33.44. That puts wage growth in the trailing 12-month period to 4.3 percent. At the same time, hourly wages for "private-sector production and nonsupervisory employees" increased by 13 cents (0.5 percent) to $28.75.

‍

This appears to indicate that wages are edging closer to the inflation rate by increasing, as the air continues to leak out of the inflation balloon at a maddeningly slow rate (4.9 percent for April 2023, the most recent such figure currently available). This is the smallest gap between wage growth and inflation rates since COVID derailed the economy.

‍

Digging Into the Details

‍

The latest jobs report downplays the strong May numbers by observing that the 339,000 tally of jobs added for the month is more or less "in line with the average monthly gain of 341,000" over the trailing 12 months back to July 2022. While that may be true, this smooths out strong spikes in July 2022 and January 2023 with generally lower numbers in all months over that time frame.

‍

If you toss those two outliers, the resulting average for the other 10 months comes to 241,000 instead. That strikes me as being a more on-trend phenomenon, and better shows off the surprising strength of the May numbers. Also, the latest report revises the prior month’s numbers strongly upward as well: March increased by 52,000 (from 165,000 to 217,000), while April bumped up by 41,000 (from 253,000 to 294,000).

‍

That, to me, looks like strength upon strength. Where did the May growth happen? Let me lay it out for you:

‍

Professional and business services led the pack for May, adding 64,000 jobs after a similar upsurge the month before. Of that total, professional, scientific, and technical services account for 43,000 jobs.

Government employment jumped by 56,000 for May, about one-third higher than the 12-month trailing average of 42,000. That said, this sector remains below pre-pandemic levels by 209,000 jobs (0.9 percent) but is rapidly closing in on parity at long last.

Healthcare waxed by 52,000 jobs in May, in line with the 12-month trailing average of 50,000. Of that total, ambulatory health care services accounted for 24,000, hospitals another 20,000, and nursing and residential care facilities 9,000.

Leisure and hospitality also continues to play catch-up to pre-pandemic levels. It added 48,000 jobs for May, most of which (33,000) was in food services and drinking places. The May numbers are well below the 12-month trailing average of 77,000, and this sector is still down by 349,000 jobs from February 2020 (2.1 percent). It’s possible that it might regain parity before 2023 is over, though.

Construction grew by 25,000 jobs for May, of which 11,000 jobs went to heavy and civil engineering construction (an infrastructure investment dividend starting to show, perhaps). The 12-month trailing average for this sector is 17,000 jobs, so May’s numbers are actually stronger that that.

Transportation and warehousing increased by 24,000 jobs for May, of which 12,000 went to transit and ground passenger transport, 8,000 to couriers and messengers, and 3,000 to air transport. This sector has been up and down over the past 12 months; the May jobs report cites "no clear trend in recent months." This had been a major growth spot during the pandemic as physical shopping was overtaken by its online equivalent. Now it seems more or less stalled.

Social assistance eked out a 22,000 job gain for May, on par with the 12-month trailing average of 23,000. Of that total, 17,000 jobs went to individual and family services.

‍

The remaining sectors that the U.S. BLS tracks — namely, mining, manufacturing, wholesale and retail trades, information, financial activities and other services — were more or less flat for May.

‍

Other Viewpoints on the May Numbers

‍

The previously cited Washington Post story describes the May results as "blockbuster" and its headline cites "strong growth that defied head winds." They also called this latest report good news, and said it reflects "the 29th straight month of strong job growth that has come to define the pandemic recovery economy."

‍

They also cited a consensus forecast number of 180,000 (which makes the May 339,000 result even more surprising than my comparable figure of "just under 200,000" for what labor economists expected to see). Surprising, indeed.

‍

They also point to "other signs that the labor market remains healthy," including low numbers for new applications for unemployment benefits, strong growth in job openings, consumer spending up in April, and the recent deal struck in Congress on the deficit cap as reasons for continued optimism.

‍

NPR's coverage refers to the May results as "a stunningly strong number," and mentions the upward revisions to the prior two months as further evidence for ongoing and continuing job growth. But they do express concern at the unemployment rate, saying that it "paints a less rosy picture," in which a 1 percent spike in unemployment for African-Americans is of concern.

‍

That said, they also find reason to "reinforce concerns about inflation" as jobs and wages continue to gain ground. They believe — as I do — that these numbers will weigh in the Fed’s next decision on interest rates when they next meet.

‍

The Politico headline speaks to the strength of the jobs market and its impact on interest rates, too: "Jobs surge surprise show’s economy's strength but clouds Fed plans." They also lead with the notion that "(t)he red-hot labor market is refusing to cool down."

‍

Later in the story they quote University of Michigan economist Justin Wolfers in a tweet saying that "the current rate of job growth is best described as 'EXTRAORDINARILY ROBUST' " (all caps emphasis from the original text, not mine). They also opine that these numbers may persuade the Fed to throw in another rate hike at their next meeting to try to cool the economy down further, as well as attempt to drag down inflation toward the target 2 percent level.

‍

All I can say is "Good luck with that!"

‍

Finally, CompTIA’s assessment — much like mine — is that the May jobs numbers are both up and down. Their focus on the tech sector shows that the tech unemployment rate is down to a mere 2 percent, with tech hiring up across the economy, while tech sector employment itself continues trending downward if only very slightly (-0.1 percent).

‍

Demand for software developers and engineers, IT project managers, data analysts and IT support specialists continues strong, with 20 percent of open positions in "emerging technologies or in jobs that require emerging tech skills(.)" The overall tech employment outlook is thus basically OK, but is not particularly rosy at the moment.

‍

Is a Cool-Down Finally Coming?

‍

It's hard to say: Despite narrowing consensus forecasts, economic dark clouds galore, and the Fed's best efforts, the job market just goes from strength to strength. The bump in unemployment is the first fundamental sign of a possible slowdown. But gosh, we'll just have to see what next month's numbers bring to that party.

‍

Stay tuned: It's bound to be exciting.