The headline seasonally adjusted BLS job growth was on the low side of expectations, with the unemployment rate worsening from 6.1 % to 5.8 %.

Analyst Opinion of the BLS Employment Situation

Although this is a good report, analysts expected better.

The economically intuitive sectors were mixed for economic growth.

The rate of further recovery will be dependant on the coronavirus and the knock-on effects.

• The year-over-year rate of growth for employment accelerated by 2.9 % this month (red line on the graph below). The year-over-year growth rate is 10.4 % above the rate of growth one year ago. [all due to comparison to the lockdown one year ago]

• This month's report internals (comparing household to establishment data sets) somewhat correlated with the household survey showing seasonally adjusted employment grew 444,000 vs the headline establishment number growing 559,000. The point here is that part of the headlines are from the household survey (such as the unemployment rate) and part is from the establishment survey (job growth). From a survey control point of view - the common element is job growth - and if they do not match, your confidence in either survey is diminished. [note that the household survey includes ALL job growth, not just non-farm).
• The household survey removed 53,000 people from the labor force which explains the improvement in the unemployment rate.
• The NFIB statement on employment at the end of this post.

A summary of the employment situation:

• BLS reported: +559K (non-farm) and +492K (non-farm private). The headline unemployment rate improved from 6.1 % to 5.8 %
• ADP reported: an employment growth of 978,000 (non-farm private)
• In Econintersect's May 2021 economic forecast released in late April 2021, we estimated non-farm private payroll growth at 300,000 (based on economic potential)
• The market expected (from Econoday):

Seasonally Adjusted Data	Consensus Range	Consensus	Actual
Nonfarm Payrolls - M/M change	400,000 to 950,000	645,000	+559,000
Unemployment Rate - Level	5.7 % to 6.0 %	5.9 %	5.8 %
Private Payrolls - M/M change	350,000 to 750,000	600,000	+492,000
Manufacturing Payrolls - M/M change	12,000 to 55,000	29,000	+23,000
Participation Rate - level	61.8 % to 61.8 %	61.8 %	61.6 %
Average Hourly Earnings - M/M change	-0.3 % to 0.5 %	+0.2 %	+0.5 %
Average Hourly Earnings - Y/Y change	-0.4 % to 1.8 %	+1.2 %	+2.0 %
Avg Workweek - All Employees	34.9 hrs to 35.0 hrs	35.0 hrs	34.9 hrs

The BLS reports seasonally adjusted data - manipulated with multiple seasonal adjustment factors, and Econintersect believes the unadjusted data gives a clearer picture of the job situation.

The following chart compares the job gains/losses this month with the same month historically.

Cumulative employment growth this year is +1,611,000

The last month's headline employment gains were little changed. Generally speaking, the INITIAL employment gain estimate is overstated when the economy is slowing and understated when the economy is accelerating.

Concentrating on the labor force growth Vs. employment growth - it should be noted that the trend shows that the slack between labor force growth and employment growth was narrowing slowly before the coronavirus hit.

Most of the analysis below uses unadjusted data and presents an alternative view of the headline data.

Unemployment

The BLS reported U-3 (headline) unemployment was 5.8 % with the U-6 "all-in" unemployment rate (including those working part-time who want a full-time job was fell from 10.4 % to 10.2 %. These numbers are volatile as they are created from the household survey.

BLS U-3 Headline Unemployment (red line, left axis), U-6 All In Unemployment (blue line, left axis), and Median Duration of Unemployment (green line, right axis)

Econintersect has an interpretation of employment supply slack using the BLS employment-population ratio, demonstrated by the graph below. The employment-population ratio improved from 57.9 to 58.0

Employment-Population Ratio

The employment/population ratio is determined by the household survey.

• Econintersect uses employment-population ratios to monitor the jobless situation. The headline unemployment number requires the BLS to guess at the size of the workforce, then guess again who is employed or not employed. In employment-population ratios, the population is a given and the guess is who is employed.
• This ratio has been in a general uptrend since the beginning of 2014. The employment-population ratio tells you the percent of the population with a job. Each 0.1 % increment represents approximately 300,000 jobs. [Note: these are seasonally adjusted numbers - and we are relying on the BLS to get this seasonal adjustment factor correct]. An unchanged ratio would be telling you that job growth was around 150,000 - as this is approximately the new entries to the labor market caused by population growth.
• The growth in employment since the Great Recession was in full-time jobs.

Employment Metrics

The growth trend in the establishment survey's non-farm payroll year-over-year growth rate was trending up in 2018. The year-over-year growth rate declined in 2019 but 2020 was hit by the coronavirus pandemic.

Unadjusted Non-Farm Payrolls Year-over-Year Growth

Another way to view employment is to watch the total hours worked where trends vary based on periods selected but the coronavirus has caused a significant loss of hours worked.

Percent Change Year-over-Year Non-Farm Private Weekly Hours Worked

The bullets below use seasonally adjusted data from the establishment survey except where indicated:

• Average hours worked (table B-2) was unchanged at 34.9. A rising number normally indicates an expanding economy
• Government employment increased 67,000 (67K) with the Federal Government down 11K, state governments up 45K, and local governments up 33K.
• The big contributor to employment growth this month was accommodation and food services ( 220.6K)
• Manufacturing employment was up 23K and construction was down 20K
• The unemployment rate (from the household survey) for people between 20 and 24 (Table A-10) improved from 10.5 % to 10.1 %. This number is produced by a survey and is very volatile.
• Average hourly earnings (Table B-3) was up $0.15 to $30.33

Private Employment: Average Hourly Earnings

Economic Metrics

Economic markers used to benchmark economic growth (all from the establishment survey).

The truck employment was down 1.9K

Truck Transport Employment - Year-over-Year Change

Temporary help was up 4.4 K.

Temporary Help Employment - Year-over-Year Change

Econintersect believes the transport sector is a forward indicator. Others look at temporary help as a forward indicator.

Food for Thought

Who are the victims in this employment situation? It is not people over 55.

Index of Employment Levels - 55 and up (blue line), 45 to 54 (red line), 35 to 44 (green line), 25 to 34 (purple line), 20 to 24 (light blue line), and 16 to 19 (orange line)

Women are doing better than men.

Index of Employment Levels - Men (blue line) vs Women (red line)

Mom and Pop employment remains historically low.

The less education one has the less chance of finding a job.

Index of Employment Levels - University graduate (blue line), Some college or AA degree (orange line), high school graduates (green line), and high school dropouts (red line)

Here is an indexed view of employment levels.

Index of Employment Levels (from the BLS Establishment Survey) - Hispanic (blue line), African American (red line), and White (green line)

However, keep in mind that population growth is different for each group. Here is a look at employment to population ratios which clearly shows NO group has recovered from the Great Recession:

Employment / Population Ratios (from the BLS Household Survey) - Hispanic (blue line), African American (red line), and White (green line)

NFIB Report on Employment

A record-high 48% of small business owners in May reported unfilled job openings (seasonally adjusted), according to NFIB's monthly jobs report. May is the fourth consecutive month of record-high readings for unfilled job openings and is 26 points higher than the 48-year historical reading of 22%.

"Small business owners are struggling at record levels trying to get workers back in open positions," said NFIB Chief Economist Bill Dunkelberg. "Owners are offering higher wages to try to remedy the labor shortage problem. Ultimately, higher labor costs are being passed on to customers in higher selling prices."

Sixty-one percent of owners reported hiring or trying to hire in May. Owners have plans to fill open positions with a seasonally adjusted net 27% planning to create new jobs in the next three months.

A net 34% of owners (seasonally adjusted) reported raising compensation, the highest level in the past 12 months. A net 22% of owners plan to raise compensation in the next three months, up two points from April.

Small business owners continue to report finding qualified employees remains a problem with 93% of owners hiring or trying to hire reported few or no "qualified" applications for the positions they were trying to fill in May. Thirty-two percent of owners reported few qualified applicants for their positions and 25% reported none.

Eight percent of owners cited labor costs as their top business problem and 26% said that labor quality was their top business problem, the top business concern.

Forty percent of small business owners have job openings for skilled workers and 27% have openings for unskilled labor. In the construction industry, 51% of job openings are for skilled workers. Sixty-six percent of construction businesses reported few or no qualified applicants.

Click here to view the full NFIB jobs report.

Caveat on the use of BLS Jobs Data

The monthly headline data ends up being significantly revised for months after the initial release - and is subject also to annual revisions. The question remains how seriously can you take the data when first released.

Econintersect Contributor Jeff Miller has the following description of BLS methodology:

1. An initial report of a survey of establishments. Even if the survey sample was perfect (and we all know that it is not) and the response rate was 100% (which it is not) the sampling error alone for a 90% confidence interval is +/- 100K jobs.
2. The report is revised to reflect additional responses over the next two months.
3. There is an adjustment to account for job creation — much-maligned and misunderstood by nearly everyone.
4. The final data are benchmarked against the state employment data every year. This usually shows that the overall process was very good, but it led to major downward adjustments at the time of the recession. More recently, the BLS estimates have been too low.

ADP (blue line) versus BLS (red line) - Monthly Jobs Growth Comparison

However, there is some discussion that neither the ADP nor BLS numbers are correct - as both are derived by a sampling methodology. The answer could be that there is no correct answer in real-time - and that it is best to look at the trends. As has been noted, all eventually end up correlating.

The BLS uses seasonally adjusted data for its headline numbers. The seasonally adjusted employment data is produced by an algorithm. The following graph which shows unadjusted job growth - seasonal adjustments spread employment growth over the entire year. Employment does not really grow in the second half of the year and always falls significantly in January.

Non-Seasonally Adjusted Employment - Private Sector

There is the proverbial question on what is minimal job growth each month required to allow for new entrants to the market. Depending on mindset, this answer varies. According to Investopedia, the number is between 100,000 and 150,000. The Wall Street Journal is citing 125K. Mark Zandi said 150K. Econintersect is going with Mark Zandi's number:

• In Econintersect's June 2014 economic forecast released in late May, we estimated non-farm payroll growth at 160,000 (unadjusted based on economic potential) and 229,000 (fudged based on current overrun of economic potential).
• If Econintersect uses employment-population ratios, the correct number would be the number where this ratio improved. Using the graph below, the ratio began to improve starting a little after mid-year. This corresponds to the period where the 12-month rolling average of job gains hit 150,000.

Employment to Population Ratio

Note: The ratio could be fine-tuned by adjusting to the ratio of employment to the working-age population rather than the total population. However, this would not change the big picture that an increase of somewhere around 150,000 (+/-) is needed for the growing population numbers. We have an estimated 140k - 160k. The number might possibly be within the range 125k - 175k. Econintersect cannot find a reason to support the estimates below 125k.

The question of how changing demographics impact employment numbers is at the margins of analysis. Econintersect will publish more on this fine-tuning going forward, both in-house research and the work of others