By Alex Carrick – Chief Economist, Construct Connect
June 3, 2016
The latest Employment Situation report from the Bureau of Labor Statistics has shocked many analysts with its negativity. The unemployment rate in May did tighten to 4.7%, but that was mainly due to a 0.2 percentage point decline in the participation rate, from 62.8% to 62.6%.
More significant, the month-to-month jobs gain was only +38,000 versus a consensus estimate of +160,000.
Further distressing news appeared deep in the text of the report, well below the opening paragraph.
The number of persons ‘employed part-time for economic reasons’ increased by +468,000, to a level of 6.4 million. This category includes workers whose hours have been cut, or who are settling for part-time positions because they haven’t been able to find what they really want, full-time jobs.
Hence, they are also often referred to as ‘involuntary part-time workers’.
There were also unsettling revisions to the data from previous months. April’s initially-reported +160,000 jobs increase was knocked back to +123,000 and March’s first-reported +208,000 figure has been revised to +186,000.
Therefore, the March-plus-April total employment rise has gone from a strong +368,000 to a less impressive +309,000. The correction has been -59,000.
The average employment increase over the past five months has slipped to +150,000, whereas it was +219,000 during the same January-to-May period of 2015.
There’s the danger that the weak jobs report portends tougher economic times ahead. After all, first quarter ‘real’ (i.e., adjusted for inflation) gross domestic product (GDP) growth was a disappointing +0.8% annualized.
The first quarter, however, has not proven to be good indicator of how the whole year will turn out for some time now. Q1 a year ago was +0.6% and two years ago, -0.9%, while each of 2014 and 2015 accomplished +2.4% GDP growth by the time everyone was singing Auld Lang Syne.
There is a manner in which this latest labor report will be given a positive spin. It will almost assuredly cause the Federal Reserve to push any notion of a next interest rate hike to the back burner until at least the fall.
Furthermore, with a lowered expectation of higher yields in America, some of the helium inflating the value of the U.S. dollar will be released.
Additionally, sought-after 2.0% inflation will receive a boost from higher import prices, on account of the currency effect, and manufacturers and outward-looking service providers will find it easier to make foreign sales.
Among major industry sub-sectors, the leader in providing net new employment in May, by a wide margin, was ‘education and health services’, +67,000 jobs. And it was health care (+55,000) that far outdistanced schools (+12,000).
Employment in hospitals rose by 17,000.
‘Information services’ saw a reduction in employment of 34,000. This was likely a one-time event, as workers at Verizon took to the picket lines for a strike that has subsequently been settled.
‘Retail trade’ and ‘leisure and hospitality’ each added 11,000 jobs in May, while ‘professional and business services’ undertook net hiring of +10,000. The latter figure was despite a substantial shedding of jobs (-21,000) by ‘temporary help services’.
The temp-help jobs decline provides another source of worry about a possibly slowing pace of overall economic output. The workers who will be let go first in a ‘soft spot’ will be those who are retained on a more tenuous basis.
Reduced exploration, drilling and extraction activity on account of a depressed world price for oil caused a -11,000 change in the number of ‘mining and logging’ jobs. The unemployment rate in the sector soared into double-digit percentage territory, 11.1% not seasonally adjusted (NSA).
A year ago, in May 2015, it had been 7.2%.
Employment in the manufacturing sector was -10,000 month-to-month, although the jobless rate, at 4.7%, stayed about the same as in May 2015 (4.6%).
The number of construction jobs diminished by 15,000, about evenly split between buildings (-7,000) and ‘heavy and civil engineering’ (-8,000).
Year-over-year construction employment, at +3.4%, continued to outpace − by double − the economy-wide performance of +1.7%.
Construction’s unemployment rate of 5.2% in May was the lowest it has been since October 2006 (4.5%), nearly ten years ago. In May of 2015, the on-site sector’s jobless rate was 6.7%.
The construction unemployment rate reached its worst level (24.9%) in March 2010 in the immediate aftermath of the Great Recession, when one-in-four potential workers were waylaid.
Meanwhile, those employees in ‘financial activities’ and with ‘government services’ are basking in sectors with extremely favorable jobless rates that are 1.8% and 2.1% respectively.
The federal government added 12,000 jobs in May. Local government net hiring at 8,000 wasn’t far behind, but state authorities cut payrolls by 7,000. The net effect was +13,000 jobs.
With the nation’s unemployment rate so low (4.7%), are compensation levels being driven skyward? Not really. They’re maybe on a slight incline, but nothing dramatic.
For all workers, including supervisory personnel, year-over-year average hourly earnings in May were +2.5% and average weekly earnings, +2.2%. Excluding bosses, the same two measures were +2.6% and +2.8%.
Specifically for construction, and including supervisors, both average hourly and average weekly earnings were +2.4% year over year. Leaving out bosses, the corresponding figures were +2.4% and +2.9%.
No-one’s going to get too excited until compensation rates move consistently above +3.0%.
