The May jobs report, released Friday morning, was perhaps the most anticipated monthly jobs figure since the reports released in the thick of last fall’s presidential campaign season. But this time around, the political junkies weren’t paying attention. Rather, investors and economic analysts were trying to suss out what the report might mean for the markets. A weak number would suggest the Federal Reserve would continue its efforts to support the economy through asset purchases (good for stocks!). A very strong number would suggest the Fed would start to taper its asset purchases sooner rather than later (probably bad for stocks).
The report came in right down the middle. The economy added 175,000 new payroll jobs, which is decent but not fabulous. However, the unemployment rate ticked up and wages didn’t really budge.
Here are a few important takeaways.
Recovery spring is continuing! The Bureau of Labor Statistics reported that the U.S. economy added 175,000 payroll jobs in May. That’s been par for the course for the last several months. But it’s marginally stronger than the pace of the last couple of months. The April figure, originally reported as a gain of 165,000, was revised downward to 149,000. The March gain, previously reported as 138,000, was revised upward to 142,000. Compared with a year ago, there are 2.115 million more Americans with payroll jobs. Since February 2010, the economy has added about 6.3 million jobs.
Measured simply by the ability of people to get and hold on to payroll jobs, the labor market is clearly continuing to recover. There was more positive news. The payroll jobs figures is tallied by the establishment survey, in which BLS asks companies how many people are on their payrolls. The unemployment rate is tallied by the household survey, in which BLS calls people at home and asks them questions about their employment status. This month, the household survey revealed some positive news. The labor force grew by 420,000 in May, a sign that people have stopped dropping out. And the number of those who reported themselves as being employed rose by 319,000.
There’s still a huge amount of slack in the labor force. Despite the gains, there are still fewer payroll jobs in the U.S. than there were in late 2008. And this report highlights the huge amount of unused human capacity in the U.S. Because more people entered the workforce than found new employment in May, the unemployment rate ticked up to 7.6 percent. The U-6 rate, which takes into account people who are working part-time for economic reasons and those who have given up looking, stood at 13.8 percent in May. That’s down from 14.8 percent a year ago, but still quite high. In part because there are so many people still looking for work, employers have been able to keep a lid on compensation costs. In May, average hourly earnings for private sector workers rose by a single, shiny penny, to $23.89. Over the past year, average hourly earnings for such workers are up a measly 2.0 percent.
The baton is passing. For much of this expansion, portions of the economy tied to strong global growth—mining, shipping, manufacturing —were outperforming services. But as growth slows outside our borders, services and sectors tethered to the U.S. consumer seem to be taking the lead in job creation. The manufacturing sector cut 8,000 jobs in May, while employment in mining and logging was flat. By contrast, professional and business services added 57,000 positions, food service and drinking establishments added 38,000 posts, and retail (28,000) and health care (11,000) posted gains.
The “conservative recovery” may be ending. I’ve dubbed the last few years a “conservative recovery,” because the private sector has been adding jobs every month while the public sector—federal, state, and local government—has been cutting positions. That doesn’t usually happen in the years after a recession. But this time has been different, as governments at all levels have dealt with budget deficits by slashing jobs. Between February 2010 and April 2013, the private sector added about 6.78 million jobs. Between May 2010 and April 2013, the public sector cut 1.147 million jobs.
Thanks to the sequester and continuing budget battles, federal employment continues to fall. In May the federal government cut 14,000 positions. In the past year, federal government employment has fallen by 73,000, or about 2.6 percent. But something is changing. As we’ve noted, state and local finances are improving, in some cases dramatically, with many states now reporting surpluses. The continued improvement is reducing the pressure on state and local governments to cut jobs. And indeed, in May, state and local governments added a combined 11,000 positions. (States cut 2,000 jobs while local governments added 13,000.)