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First Cut: May payroll gain of 75,000 below expectations, while unemployment rate holds at 3.6% and U6 declines to 7.1%

While the May Employment Situation was softer than hoped on the establishment survey side, the household survey was not much changed. Overall the report suggests that labor market fundamentals are not much changed. The softness in the May data is only one month and as such is likely an outlier, although it is probable that the labor market will be less vigorous in coming months due to slower growth.

Nonfarm payrolls rose a lackluster 75,000 in May. Payroll adds for April and March were revised lower to 224,000 (previously 263,000) and 153,000 (previously 189,000). The net downward revision of 75,000 takes some of the gloss off the two months’ originally reported performance, but the levels were still good ones. For the second quarter to-date, payrolls averaged increases of 150,000 per month, not materially below the 174,000 average for the first quarter. The underlying trend remains one sufficiently strong to absorb new workers coming into the labor force.

Private payrolls were up 90,000 in May, quite a bit stronger than the alarming up 27,000 seen in the ADP report. However, that number did presage significant slowing in the government report. The 8,000 increase for goods producers was meager compared to April when it rose 35,000. The slower reading was mainly due to sharply lower payroll adds for construction with up 4,000 in May after up 35,000 in April. Gains for service providers were 82,000 for May, about half the rate of the 170,000 in April. Contraction continues in the retail sector with the closure of brick-and-mortar stores. However, there were good increases for professional services of up 33,000,  healthcare at up 27,000, and leisure and hospitality at up 26,000. The total decline of 15,000 for government reflected the end of the school year with state education (down 8,300) and local education (down 6,100) both lower.

Employment in weather-sensitive sectors (construction, retail, transportation and warehousing, [administration less temporary workers], and social assistance) was up 14,200 in May after up 80,400 in April. This indicates that some of the lackluster pace of payroll gains was at least in part due to payback after stronger than usual increases in the prior month.

Average hourly earnings stayed on trend with a month-over-month rise of 0.2% but at 3.1% was the lowest year-over-year gain since July 2018. The average workweek was unchanged at 34.4 hours.

Data for the establishment survey probably should be viewed as an average of a very strong April and a softer May.

The unemployment rate remained at 3.6% in May for a second month (3.620% unrounded in May versus 3.585% in April). It remained the lowest since 3.5% in December 1969. The U6 rate dipped two-tenths to 7.1%, the lowest since 6.9% in December 2000. The participation rate remained at 62.8%, about in line with the recent trend. The employment-to-population ratio remained at 60.6%.

Those at work part-time for economic reasons fell 299,000 to 4.355 million in May, job losers were up 13,000 to 2.664 million, job leavers were up 66,000 to 803,000, and new entrants to the labor force were up 69,000 to 599,000. This indicates that fewer workers are underemployment, few are losing their jobs, workers are feeling freer to switch jobs, and the labor force is able to absorb workers coming into it.

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