May Payrolls Up Just 138,000, Unemployment Rate Down to 4.3%
- Payroll Employment increased by 138,000 jobs in May, below expectations.
- The Unemployment Rate for May fell to 4.3 percent.
- Average Hourly Earnings increased by 0.2 percent for the month; the average workweek was unchanged.
- The U.S. International Trap Gap widened to -$47.6 billion in April.
Despite a stronger-than-expected ADP Employment Report for May, the official Bureau of Labor Statistics Employment Report showed a weaker-than-expected 138,000 net new payroll jobs for the month. Moreover, April and March payrolls were revised down by a total of 66,000 jobs. The pace of U.S. job growth appears to be easing, and this is what we have been expecting to see as the economic expansion matures. In 2014, a robust 250,000 net new payroll jobs were added per month. That declined to 226,000 per month in 2015, and to 187,000 per month in 2016. Through May we are averaging 162,000 net new payroll jobs per month in 2017. We expect payroll job gains to rebound in the coming months, but we do not expect to see a repeat of the robust job growth of 2014 in this business cycle. Despite weaker-than-expected payroll job growth for May, the unemployment rate unexpectedly fell to 4.3 percent. This was due to a combination of fluky inputs to the unemployment rate calculation. First, the household survey of employment showed a sizeable loss of 233,000 jobs for the month. It is not unusual to see the household survey dip one month and then rebound strongly the next month. Also, the labor force fell sharply by 429,000 workers in May. Again, it is quite normal to see large dips in the labor force followed by large gains. Average hourly earnings were up by 0.2 percent in May and by 2.5 percent over the previous 12 months. So we are not seeing a strong push from wages here. However, other wage surveys are warmer. The average workweek was unchanged at 34.4 hours.
Mining and logging industries continued to hire, adding 6,000 jobs for the month, consistent with the rising drilling rig count. Construction employment increased moderately, up 11,000 in May. Tight labor markets may be keeping construction employment in check. Manufacturing employment dipped by 1,000 jobs in May. We expect to see ongoing small losses in manufacturing employment. Wholesale trade gave up 2,100 jobs. Retail lost 6,100 jobs, consistent with anecdotal reports of store closings. Transportation and warehousing employment increased by 3,600 jobs. Utilities dropped 1,300 jobs in May. Information services gave up 2,000 jobs, while financial services gained 11,000. Professional and business services added 38,000 jobs, about as expected. Education and healthcare gained a respectable 47,000 jobs in May. Leisure and hospitality employment was up by a strong 31,000 jobs. The government sector was weak, losing 9,000 jobs in May, and accounting for an easy 20,000 job swing in the payroll totals for May. So net of retail and government, it was not a bad month for the establishment survey.
The U.S. international trade gap widened in June by $2.3 billion, to -$47.6 billion. Exports eased slightly while imports increased. Even though the value of the dollar has been giving up some ground this year, it is still relatively strong, which tends to weigh against exports and boost imports. The April inflation-adjusted trade gap in goods is a little wider than the Q1 average, so early in Q2 trade is shaping up to be a modest drag on GDP growth for the quarter. That could change with the May and June trade data
May’s weaker-than-expected jobs report and April’s bigger drag from trade are both negatives for the U.S. economy. However, they both look normal, especially given the maturity of the current business cycle. Also, they are countered by many other positive economic metrics. But both reports beg two important questions. First, will Trump Administration policies extend the already long expansion? The potential is there from tax reform and infrastructure spending, but the President’s political capital has been draining. The second key question is … does today’s weaker-than-expected data derail a Federal Reserve interest rate hike on June 14? We believe that the answer to that question is no. The fed funds futures market shows a strong 88.8 percent probability of a 25 basis point increase in the fed funds rate range on June 14.
Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is down to 2.15 percent. NYMEX crude oil is down to $47.68/barrel. Natural gas futures are down to $3.00/mmbtu.
PDF version of this Comerica Economic Alert click here: Employment_06022017.