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Jobs Report: What to Watch For May Jobs Report: Unemployment at 16-Year Low, With Gain of 138,000
(about 3 hours later)
The Labor Department will release the latest figures on hiring and unemployment on Friday at 8:30 a.m. Eastern time. Employment grew in May, according to data released Friday by the government, offering the latest official snapshot of the economy.
After a strong month in April, when the jobless rate dropped to 4.4 percent, the lowest level in more than a decade, analysts expect payrolls to increase by 185,000 in May and the jobless rate to remain steady. Hourly wages are expected to rise by 0.2 percent, bringing the year-over-year increase to 2.6 percent. • 138,000 jobs were added last month. Economists had expected a gain of about 185,000.
Here’s what to watch for. • The unemployment rate fell to 4.3 percent, the lowest since 2001.
This is the last employment report before Federal Reserve officials hold their next meeting on monetary policy June 13 and 14. For months, the central bank has been sending the message that the economy is strong enough to withstand another increase in the benchmark interest rate. • The average hourly wage grew by 0.2 percent, bringing the year-over-year increase to 2.5 percent.
This week, another signal was delivered by Lael Brainard, a Fed governor, that the central bank would proceed this month even in the face of some weak data. That suggests that it would take a substantial downturn in the job and wage outlook to derail the Fed from its course. • A broader measure of employment — including people who work part time but want full-time jobs, and those who have become too discouraged to keep looking but would take a job if they could find one — dropped to 8.4 percent.
Once the recovery took hold, the retail sector could be depended on to churn out more jobs. But it has disappointed in 2017. After two months of heavy losses, the sector added a mere 6,000 positions in April, and the outlook is grim. This week, the fashion company Michael Kors announced that it would close 100 to 125 stores in the next two years. • The increase in total nonfarm payroll employment for March was revised to 50,000, from 79,000, and the increase for April was revised to 174,000, from 211,000.
“Retail isn’t dying, but traditional retail is dying,” said Dan North, chief economist at Euler Hermes North America. “There is creeping Armageddon for brick and mortar.” Another round of big losses in May would suggest the pace is quickening. With this latest jobs report out of the way, the runway is now clear for the Federal Reserve to raise benchmark interest rates when it meets June 13 and 14.
Construction hiring was also anemic in March and April, but Mr. North attributed that to bad weather. Given the demand for new housing, analysts are expecting the sector to rebound. “If we don’t,” he said, “then something else is going on.” Even before the Labor Department’s release on Friday morning, the Fed had been sending firm signals that its members viewed the economy as strong enough to withstand another rate increase.
Not all increases are created equal. Although grinding down the jobless rate is generally the goal, a rise in unemployment can be a positive sign — if it is for the right reasons. One of those would be that people who dropped out of the work force are finally encouraged enough to re-enter it. New graduates could also increase the number of job hunters in May. The continuing low unemployment rate — more than a year without breaking the 5 percent mark — will only sharpen the debate over how close the labor market is to capacity.
“A lot of students are leaving school, so I would expect it to tick up a little,” said Beth Ann Bovino, United States chief economist for S&P Global Ratings. Analysts were split over whether the May report was encouraging or disappointing. For those who think the economy is close to capacity, last month’s gains were solid. “With the unemployment rate dropping to 4.3 percent, it really can’t get much better,” said Brian Kropp, HR practice leader at the consulting firm CEB.
With the official unemployment rate so low, two factors guide the debate over whether the labor market is operating at full capacity: the proportion of adults in the labor force, and wage growth. Josh Wright, chief economist at iCims, a human-resources software provider, said this may not be the month to break the slow-growth trend for wages because of the way the calendar falls. David Berson, chief economist for Nationwide, was much more negative. “Over all, this is a disappointing jobs report, with the slowdown in payroll employment, the downward revisions to prior months’ job growth, and the slower increase in wages,” he said.
The Labor Department ordinarily conducts its survey on the 12th of the month, which in May was a Friday. That means any wage increases scheduled to take effect on the 15th — a common payday — were not included in this month’s report, because they occurred in the next week. One negative sign was that the labor-force participation rate dropped, to 62.7 percent, a sign that sidelined workers were not rejoining the labor force. “That’s always ugly,” Dan North, chief economist at Euler Hermes North America, said of the decline. Although the numbers were below what Wall Street expected, it “is not enough to derail the Fed at all,” Mr. North said. The job creation at this point in the recovery is still solid.
With revisions to March and April’s job totals that show 66,000 fewer jobs created than initially reported, the three-month average swooped down to 121,000. That is far lower than previously reported, but sufficient to provide jobs to a growing population, if not to draw in dropouts.
“Even though job growth slowed, it’s still well above where it needs to be to keep up with the working-age population growth,” said Jed Kolko, chief economist at Indeed, an online recruiting site. “It’s inevitable that we would start to see a slowdown in the payroll numbers. Month-after-month job gains in the 200,000 range are not sustainable longer term. The working-age population is growing too slowly to support that.”
The Hamilton Project at the Brookings Institution in Washington calculates what it call the “jobs gap,” the number of jobs that the economy needs to create to return to pre-recession employment levels while also absorbing the people who enter the potential labor force each month. This month, the gap dropped to 340,000.
(Can you believe the jobs numbers? Here’s an explanation of how the Labor Department — consistently — compiles the data.)
From January to April, the jobless rate fell from 4.8 percent to 4.4 percent. “To drop that rapidly is remarkable, especially when we’re already low,” Mr. North said of the rate. “That’s a really positive sign.”
It also suggests that the apparently tight labor market still has baggy spots. “We have seen pretty big labor force additions in the past couple of months,” Mr. North said. “I still think there are people on the sidelines who are being drawn back in, and that’s one of the reasons wage growth has been so slow. There’s been an influx of a new supply of labor.”
These previously sidelined workers, who have been out of the job market for a while or are lacking up-to-date skills, may have less bargaining power.
Alan MacEachin, chief corporate economist at Navy Federal Credit Union, noted that while the pool of long-term unemployed has dropped significantly since the recession, it remains high in comparison with previous recoveries.
Nonetheless, he argued that full employment, the point at which everyone who wants a job at the current wage can get one, was near.
“Since 2012, this has been a tremendous period of steady, solid job growth — historic in many ways — that has slowly absorbed most if not all of the underemployed and unemployed people last year,” Mr. MacEachin said.
Growing numbers of employers complain about how difficult it is to hire workers. “We have 50 to 60 openings in Pennsylvania and probably close to 100 openings across the country,” said Mark Traylor, president of the Ames Companies, whose wheelbarrow factory recently played host to President Trump.
“We’ve really had to change our tactics of how we source associates,” Mr. Traylor said. His company has begun working with local high schools and community colleges to interest students in entry-level manufacturing and distribution jobs — paying about $15 an hour — which have been particularly hard to fill.
That willingness to train tends to be confined to the largest corporations, said Jim Guerrera, managing director at SC Novi in Michigan, an affiliate office of MRINetwork, a recruiting network. “Less and less people are willing to train,” said Mr. Guerrera, whose company specializes in the industrial and automotive sectors. Younger people tended to change jobs more frequently in the past, he said, so companies do not want to make the investment only to see their new hires leave in a couple of years.
“The hiring for very specific skilled and highly skilled workers is at an all-time high right now,” he said, noting that vehicle production has reached record levels. “But people who don’t have a differentiated skill set are having a harder time finding a position.”
The latest four-week average for initial jobless claims — which reflect firings — provided more evidence of the labor market’s tightness this week; it remained under 240,000, a historically low level.
“Firms are reluctant to let people go because they fear that they won’t be able to rehire them later if needed, because the labor market is so tight,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in his commentary.
The outlook for retail is not as rosy. Once the recovery took hold, the retail sector could be depended on to churn out more jobs. But it has disappointed in 2017, with heavy losses. This week, the clothing company Michael Kors announced that it would close 100 to 125 stores in the next two years.
“Retail isn’t dying, but traditional retail is dying,” said Mr. North of Euler Hermes. “There is creeping Armageddon for brick and mortar.”
The transformation of the retail business wrought by online commerce has caught the attention of employers across sectors. “There’s an overriding concern with everybody I talk to,” said Frank Friedman, chief operating officer of the international accounting and consulting firm Deloitte. “How is technology going to disrupt — if at all — my business?”