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Consumption leads to employment. That’s true at bottoms, and it’s true at peaks as well. Since February, when consumption growth started to flag, I have been waiting for it to show up decisively in job numbers. From March through May, average growth decelerated from over 500,000/month to 400,000/month.

So in this jobs report, I have been most interested to see if it declined further.

Additionally, I remained interested in whether nominal wage growth was also holding up, whether it too was beginning to decelerate; and also, whether the leading indicators in the report beginning to show stress.

The answers are that average growth only decelerated slightly further, to 383,000 in the past 3 months; as did wage growth for non-managerial workers, at 6.4% YoY; but the leading indicators turned significantly negative.

Here’s my in-depth synopsis of the report:
 

Headlines:

• 372,000 jobs added. Private sector jobs increased by 381,000. Government jobs fell by -9,000 jobs. 
• The alternate and more volatile measure in the household report indicated a  *decline* of -315,000 jobs. The above household number factors into the unemployment and underemployment rates below.
• The U3 unemployment rate was unchanged at 3.6%, 0.1% above the January 2020 low of 3.5%.
• U6 underemployment rate declined -0.4% to 6.7%. THIS IS A NEW ALL-TIME LOW FOR THIS SERIES, WHICH DATES FROM 1994.
• Those not in the labor force at all, but who want a job now, declined -25,000 to 5.656 million, compared with 4.996 million in February 2020.
• Those on temporary layoff rose from 17,000 to 827,000.
• Permanent job losers declined -113,000 to 1,273,000.
• April was revised downward by -68,000, and May was also revised downward by -6,000, for a net decline of -74,000 jobs compared with previous reports.
   

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall and will help us gauge whether the strong rebound from the pandemic will continue.  These were mixed:

• the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, declined -03 hours to 40.9 hours.
• Manufacturing jobs increased by 29,000. Since the beginning of the pandemic, manufacturing has now *increased* by 12,000 jobs.
• Construction jobs increased by 13,000. All of the jobs lost during the pandemic have also been made up. 
• Residential construction jobs, which are even more leading, declined by -4,500.
• Temporary jobs rose by 5,400. Since the beginning of the pandemic, about  250,000 jobs have been gained.
• the number of people unemployed for 5 weeks or less increased by 196,000 to 2,262,000, which is back above its pre-pandemic level by 39,000.
   

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $0.13 to $27.45, which is a 6.4% YoY gain, down from its 6.7% peak at the beginning of this year.
   

Aggregate hours and wages:

• the index of aggregate hours worked for non-managerial workers rose by 0.3%, which is now 0.5% *above* its level just before the pandemic.
•  the index of aggregate payrolls for non-managerial workers rose by 0.8%, which is only about even with the average inflation gain in the past 3 months.
   

Other significant data:

• Leisure and hospitality jobs, which were the most hard-hit during the pandemic, rose 67,000, but are still -1,318,000, or -7.8% below their pre-pandemic peak.
• Within the leisure and hospitality sector, food and drink establishments added 41,000 jobs, but are still -728,400, or -5.9% below their pre-pandemic peak.
• Professional and business employment increased by 74,000, which is about 900,000 above its pre-pandemic peak.
• Full-time jobs declined -152,000 in the household report.
• Part-time jobs declined -326,000 in the household report.
• The number of job holders who were part-time for economic reasons fell -707,000 to 3,621,000, which is A NEW 20-YEAR LOW.
• The Labor Force Participation Rate declined -0.1% to 62.2%, vs. 63.4% in February 2020.
   

Summary

This report had two distinct aspects: the headline coincident numbers were excellent. But the leading indicators were mainly negative.

A three-month average gain in jobs of 383,000, while below last year’s torrid pace, is still excellent. The unemployment and underemployment figures were also excellent, in several aspects setting new records. While wage growth decelerated a bit, it is also still very good nominally. With the exception of leisure and hospitality, every significant sector has exceeded its pre-pandemic levels. Aggregate hours also increased nicely.

But when it comes to leading indicators for future employment, and for the economy in general, the news was much more downbeat. Manufacturing hours declined sharply, to the lowest level since August 2020, and are also down 1% YoY, which in the past has coincided with a slowdown and frequently a recession. Residential construction employment declined. Short-term unemployment increased. The household jobs number - which while noisy frequently leads to turning points - actually declined for the second time in 3 months. Revisions for the past two months - which also frequently turn in the direction of the near-term trend - also were negative for the second month in a row.

All was not negative among leading indicators, however. Manufacturing jobs increased. So did temporary jobs. Also, since the unemployment typically turns up in advance of recessions, that it remains at its low is a positive.

In summary, the good news is that, at present, the jobs market remains very strong. This pretty much rules out the notion that a recession has already begun. But on the other hand, there were plenty of warning signs in this report of rougher times ahead once we get to autumn.

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