May Delivers Massive Payrolls Disappointment, Despite Lower Unemployment


The U.S. Department of Labor just served up what looks like a very mixed employment situation report. The unemployment rate unexpectedly dropped to 4.7% in May, versus 5.0% in April. That’s where the good news ends. The reality is that this was such a bad number that now all those Federal Reserve presidents talking up rate hikes might need to go take some calming medicine.

Nonfarm payrolls were up by a mere 38,000 in May. Bloomberg and Dow Jones were both projecting 158,000. Private sector payrolls rose by a mere 25,000 in May, shy of the 150,000 projected by Bloomberg. The Verizon strike was estimated to throw up to around 40,000 payrolls in the wild card category, but this was just weakness followed by weakness.

Where things get even worse is that payrolls were also revised lower in the prior month. Nonfarm payrolls was revised down to 123,000 from 160,000 in April, and private sector payrolls were revised down to 130,000 from 171,000 in April. If you include the drops from the revision, it makes May’s report look far worse.

What drove down the unemployment rate so much was that there was a large drop in the labor force participation rate, falling from 62.8% in April back down to 62.6% in May. This had been ticking up, but now that figure is bad too. This drop in the labor force participation rate accounted for a whole 0.3 points.

Average hourly earnings rose 0.2%, in line with the Bloomberg number. In dollar terms, average hourly earnings of all employees on private nonfarm payrolls rose by five cents to $25.59 in May. The average work week ticked down to 34.4 hours, shy of the 34.5 hours expected. Sector by sector notes were shown as follows:

  • Health care employment increased by 46,000 in May.
  • Employment in professional and business services changed little in May (+10,000), after increasing by 55,000 in April.
  • Within leisure and hospitality, employment changed little in food services and drinking places (+22,000).
  • Mining employment continued to decline in May (-10,000).
  • In the information sector, employment fell by 34,000 in  May, reflecting a strike by about 35,000 telecommunications workers.
  • Within manufacturing, employment declined by 18,000 in durable goods in May.

If you want to take the payrolls report in context, the 38,000 nonfarm payrolls was the weakest jobs growth reading going all the way back to September of 2010. That is almost 18 months after the V-bottom took place in stocks from March of 2009.

Friday’s crummy jobs report was one of the last major bits of economic data that the Federal Reserve gets to see before its FOMC meeting that will be held from June 14 to June 15. It goes without saying that all those talking-head Fed presidents will need to keep their lips a bit tighter on just how aggressive they want to be on the path to raising fed funds.

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