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What to Expect From the May Jobs Report Sharp Fall in U.S. Hiring Lowers Chance of Rate Increase by Fed
(about 3 hours later)
At 8:30 a.m. Eastern time, the Labor Department will report the figures on hiring and unemployment in May. The government reported on Friday that employers added just 38,000 workers in May, a significant slowdown in hiring that could push back a decision by the Federal Reserve to raise interest rates, as the economic recovery appears to have stalled.
The average monthly job gains in 2016 have so far fallen shy of the nearly 240,000 average of the last two years, slowing to 160,000 in April. The consensus is that May’s figure will be a comparable increase. The official unemployment rate, however, dropped to 4.7 percent, from 5 percent, mostly a result of people dropping out of the labor force.
Unemployment is expected to tick down to 4.9 percent. After showing signs of life in recent months, wages rose a steady 0.2 percent for the month, a gain of 2.5 percent for the year.
This is what you should watch for: “Boy, this is ugly,” said Diane Swonk, an independent economist in Chicago. “The losses were deeper and more broad-based than we expected, and with the downward revision to previous months, it puts the Fed back on pause.”
For weeks, Janet L. Yellen, the Federal Reserve’s chairwoman, and other Fed policy makers have been signaling their intent to raise interest rates before the end of the summer. Meetings are scheduled for mid-June, late July and September, so the question is how soon. May’s job totals were affected by the more than 35,000 Verizon workers who were on strike and classified as unemployed by the Labor Department. (They returned to work this week.)
Some Fed officials have said they think the economy is already strong enough to raise rates. As John Canally, chief economic strategist for LPL Financial, noted, a few have indicated that “job growth as low as 100,000 a month is enough to tighten the labor market.” Other officials have said they see no reason to rush. “The only good news is that wages held,” Ms. Swonk said. With those Verizon workers back on the job, Ms. Swonk and other analysts do expect next month will show an additional gain of 35,000 to 40,000 jobs.
Daniel K. Tarullo, a Fed governor who sits in the second camp, said Thursday in an interview with Bloomberg that he was still looking for “an affirmative reason to move.” Even apart from the distortion created by the Verizon strike, the average monthly job gains so far in 2016 have fallen far shy of the nearly 240,000 average of the last two years, a pace that has helped buoy the economy and cut the jobless figure in half since the height of the recession.
Any number over 200,000 is likely to nudge the Fed to move sooner rather than later. In recent weeks, Fed officials have been consistently signaling their intent to lift rates from the ground level once it is clear that the economy is healthy enough to absorb an increase. Speaking at a forum in Cambridge, Mass., last week, Janet L. Yellen, the Fed chairwoman, said it would be appropriate to increase borrowing costs “in the coming months” if growth continued to pick up and “if the labor market continues to improve.”
Whatever figure the Labor Department reports will probably seem weaker than it is in reality because more than 35,000 Verizon workers were on strike throughout May. (They returned to work this week.) Although Verizon hired some temporary replacements, the total would not offset the number who walked out. Goldman Sachs researchers have said they expect the strike to show up in two categories in the payroll report: specialty trade contractors, a component of the broader construction, and telecommunications, part of the information services. The Fed’s policy-making committee has its next three meetings scheduled for mid-June, late July and September.
For most of the recovery, wages remained stagnant, stubbornly resisting any upward motion despite the fall in the unemployment rate. But average hourly earnings have been inching up this year and staying ahead of the pace of inflation. Most analysts expect that trend to continue with a gain of 0.2 percent to 0.3 percent in average hourly earnings. A survey by the National Federation of Independent Business found that more small business owners “reported that they are raising compensation, including higher pay and more benefits” and “that compensation reports are at the highest level since 2007.” “I would say June is off the table,” said Carl Tannenbaum, chief economist at Northern Trust, noting that job creation was sluggish, the labor force participation declined for the second month in a row and the number of people working part time for economic reasons rose sharply. “It’s disappointing.”
Not everyone has seen the weakness in hiring yet. Tom Gimbel, chief executive of LaSalle Network, a Chicago recruiter, said: “In a weak economy, what usually gets cut first and usually gets put on hold first are jobs at the manager to director level — those earning between $75,000 and $125,000 — and I haven’t seen that yet. The market is strong right now. I’ve still got clients hiring.”
At the lower end of the pay scale, however, Mr. Gimbel said employers have been thinking about how they will be affected by the Obama administration’s recent decision to raise the salary cutoff for overtime pay. “They’re worried about bringing people in at a certain level,” he said. Starting Dec. 1, employers will have to give time-and-a-half overtime pay to most salaried workers earning up to $47,476, compared with the previous threshold of $23,660.
Nearly seven years into the recovery, the economy is still not delivering substantial enough gains to a broad enough swath of Americans. Hiring has slowed and low labor force participation rates are casting a shadow.
Patrick O’Keefe, director of economic research at CohnReznick, an accounting, tax and advisory firm, argued that “a 5 percent unemployment rate today is a distinctly different indication of labor market slack than a 5 percent unemployment rate would have been before the recession, in 2007.”
If the labor force participation rate had remained constant, nine million more people would be looking for a job.
“Just because people left the work force out of discouragement doesn’t mean they’re not available for work,” he said. “It just means the economy is not generating sufficient jobs at sufficient pay levels to get them back in.”
A broader measure of unemployment that includes people too discouraged to search for work or who are making do with a part-time job because they cannot find a full-time one has hovered just below 10 percent for more than six months.
While retiring baby boomers would be expected to bring down the proportion of the population in the labor market, Mr. O’Keefe said he was particularly disturbed by the significant decline among those in their prime working ages.
“In policy making, the Fed continues to focus on a measure that is maladjusted, that does not reflect the reality of today’s economy,” said Mr. O’Keefe, a former deputy assistant secretary in the Labor Department.
Across generations, many people are still not attached to the work force in the way they had envisioned. “Many may be working in the gray economy, able to pick up work here and there, but not a sustainable job,” he said.
Public sector employees — postal workers and bus drivers, teachers and police officers — have also not made up ground lost during the recession. Add in the normal growth that would be needed to keep pace with an expanding population, and there is about a 1.8 million job shortfall in public sector employment, said Elise Gould, an economist at the Economic Policy Institute, a labor-oriented research organization in Washington.
Worries about the economy is a common refrain among supporters of Donald J. Trump, the presumptive Republican presidential nominee, as well as among those who are still behind Senator Bernie Sanders’s bid to lead the Democratic presidential ticket.
Dan Finnigan, chief executive of Jobvite, a recruiting service used by start-ups, said that “anxiety about the job market among seekers is going up,” with a majority surveyed expressing concern that advancing technology will eliminate their jobs.
Although job creation has remained steady on average across Jobvite’s platform, Mr. Finnigan said he had observed a noticeable drop in openings at technology companies in California and New York.
“I think there’s going to be a flight to safety,” he said, with technologically adept workers being lured to larger companies that can offer more cash, more training and more security instead of opting for the prospect of a bigger payout with more risk.
A survey of 220 executives during the first quarter by PricewaterhouseCoopers, or PwC, the accounting and consulting firm, found that a majority planned to increase their head count this year, but the proportion was down from 2015.
“The first-quarter decline in business confidence is notable,” said Shawn Panson, a partner at PwC.