May Jobs Report: A Solid Positive Report, With The Important (Likely) Exception Of Wages

My Big Theme for the past few months has been that the AI Boom (or possibly bubble) is counterbalancing a stagnant or even shallowly recessionary rest of the economy. The bottom line is that the May report was the third in a row that not only confirmed that, but suggested the labor market as a whole - against all odds - might be firming. With the major exception of real wages.

Below is my in depth synopsis.

HEADLINES:

• 172,000 jobs gained, Private sector jobs increased 120,000, while government jobs added 52,000, a disproportionately large number. In fact, local government accounted for 55,000 jobs, suggesting a major seasonality glitch in the education sector. The three month average rose sharply to 188,000.

• The pattern of downward revisions to previous months completely reversed this month. March was revised higher for the second month in a row, by 29,000 to 214,000, and April was revised upward by 64,000 to +179,000, for a total increase of 93,000.

• The alternate, and more volatile measure in the household report, rose by 149,000 jobs. But on a YoY basis, this series was negative for the fourth month in a row, by -473,000 jobs, or an average of -39,000 monthly.

• The U3 unemployment rate remained steady at 4.3%. 

• The U6 underemployment rate declined -0.1% to 8.1%.

• Further out on the spectrum, those who are not in the labor force but want a job now rose 76,000 to 6.187 million, about average for the past 12 months.

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn vs. rebounding. These were mixed but mainly positive.

• The average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, was unchanged at 41.6 hours, tied for the highest number in 5 years, as it equalled its 2021 peak.

• Manufacturing jobs rose 7,000, the 3rd increase in the last 12 months.

• Truck driving resumed its decline, by -4,400.

• Construction jobs rose +17,000.

• But Residential construction jobs, which are even more leading, declined -1,700, but stayed within the stabilizing trend since last April.

• Goods producing jobs as a whole rose +26,000. 

• Temporary jobs, which have declined by over -650,000 since late 2022, rose by 1,400, continuing to improve from their post-pandemic low set last October.

• The number of people unemployed for 5 weeks or less declined -286,000 to 2.210 million, about average for the past 12 months.

Wages of non-managerial workers 

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.08, or +0.2%, to $32.31, for a YoY gain of +3.6%, still above its 5 year low of 3.4% set in March. Importantly, this is -0.2% lower than the YoY inflation rate through April. We will have to see what next week’s report for May CPI brings.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers increased +0.2%, and is up 1.3% YoY, the best such showing in over 2 years.

• The index of aggregate payrolls for non-managerial workers rose +0.4%, and is up 5.0% YoY, also its highest comparison in almost 2 years.

Other significant data:

• Professional and business employment rose for the second month in a row, by +7,000. These tend to be well-paying jobs. This remains above its October low, it still remains lower YoY by -35,000, which in the past 80+ years - until now - has almost always meant recession.

• The employment population ratio declined another -0.1% to 59.1%, vs. 61.1% in February 2020, and its lowest since October 2021, helped by an extremely low comparison month last May.

• The Labor Force Participation Rate was unchanged at 61.8% , vs. 63.4% in February 2020, but tied for its lowest since October 2021.
  

SUMMARY

This was the third good monthly report in a row, and probably the best of the three, with several significant exceptions. 

Let’s start with the positives. These included not just the headline employment number, but the increase in the leading manufacturing, construction, and the general goods producing sectors. Temporary help jobs and professional and business jobs increased. Short term unemployment decreased. Revisions, for a change, were positive.  

The most noteworthy negative as the low increase in wages, which most likely means that real wages declined again, and that real aggregate nonsupervisory payrolls were most likely flat or negative as well, meaning that very important short leading indicator will remain below its January peak for the 4th month in a row. Also of interest is that the unemployment rate did not decline, despite the extremely low level of jobless claims. Finally, if we deduct the likely seasonality glitch of local education employment, the monthly headline increase would be only 117,000, which while positive is hardly a blowout.

But again, with the important exception of wages, this was a solid positive report.