The latest US jobs report presented conflicting signals on a heretofore robust labour market: hiring that exceeded expectations and a jump in the unemployment rate.
Economists said they saw more reason than not to believe the labour market is still humming.
The two surveys that make up the report card for the job market diverged significantly in May. Based on the government’s survey of businesses, payrolls beat estimates for a 14th straight month, while the household survey showed the biggest single-month increase in jobless rate since April 2020.
Yet besides the 339,000 jump in payrolls, other recent data showed elevated job openings and a moderate number of unemployment claims. Moreover, because the establishment survey is larger in scope than its household counterpart, it typically has a smaller margin of error in calculating montsh-to-month changes in employment.
“It’s not just the payroll survey today, there’s a number of indicators that say, ‘Hey, look, the job market is still pretty solid,’” said Omair Sharif, president of Inflation Insights LLC. “Even if it has slowed down compared to six months ago, it’s still pretty solid.”
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Stephen Stanley, chief US economist at Santander US Capital Markets, also thinks the stronger payroll figures carry the day, especially in the wake of higher-than-expected job openings data this week and jobless claims that were little changed.
“Not only the payroll figures but pretty much every other measure of labour demand (JOLTS job openings, online job listings, initial claims, etc.) indicate that the labour market remains hot,” he wrote in a note.
Moreover, the increase in May payrolls followed upward revisions to counts in the prior two months that totalled more than 90,000. The unemployment rate rose to 3.7% from 3.4%, while wage growth moderated.
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Markets reacted to the advance in payrolls, with Treasury yields jumping after the report. Traders slightly upped their bets of the Federal Reserve hiking rates by the end of July, but investors are still projecting officials will most likely wait until next month to tighten again.
The mixed nature of the report, however, may validate Fed Chair Jerome Powell’s approach to pausing rate hikes to assess the impact of five percentage points of tightening so far.
Other officials have also voiced support for holding rates steady at this month’s meeting, while leaving the door open to resume tightening in July, as price pressures remain robust and the threat of a US debt default has been avoided.
Fed Meeting
The jobs report is one of the last major releases policymakers will see before they convene on June 13 for a two-day meeting. That morning, they’ll also see the consumer price index for May.
On the face of it, the household survey points to a deterioration in the labour market. It showed there were 440,000 more people out of a job in May, also the largest monthly rise since the onset of the pandemic, as well as a 310,000 decline in the number of employed.
But the Labor Department also publishes an “adjusted” measure of employment in the household survey that is conceptually similar to the payrolls survey. For instance, unincorporated self-employed workers, farm employees and workers in private households such as nannies or housekeepers are excluded from the household survey.
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By that count, the household survey showed a 394,000 increase in May employment.
Complicating the reading of the data even further, response rates to government surveys have been declining for years.
What Bloomberg Economics Says...
“A surprisingly robust pace of payroll gains for May – stronger than the highest estimate in Bloomberg’s survey of economists – underscores the difficulty of getting a clean read on the labor market. In our view, the labor market is softer than the headline figure suggests, with household employment actually contracting in May.”— Anna Wong, Stuart Paul and Eliza Winger, economists
The labour force participation rate — the share of the population that is working or looking for work — was unchanged at 62.6%. For those aged 25-54, it rose to the highest level since 2007, led entirely by women.
Average hourly earnings rose 0.3% in May after a downwardly revised 0.4% gain a month earlier. From a year ago, they were up 4.3%, matching the smallest increase since mid-2021.
In a concerning sign about demand, the average workweek edged down to 34.3 hours, the lowest since April 2020. Employers tend to cut hours before staff when the economy starts to weaken.
“This report provides more questions than answers,” said Bill Adams, chief economist for Comerica Bank. “The most useful way to interpret these reports is to cross check them with all of the other economic indicators available, which generally show the economy softening in in the first half of 2023.”
