Labor market may slow despite booming gains in May
The May employment report, released Friday, appeared to show the nation is nowhere near tipping into recession with employers adding a booming 339,000 jobs.
Beneath the surface, however, there were signs that the labor market is softening as unemployment rose sharply and the average working week fell to a three-year low.
“Under the hood, things are not as fluid as the headline suggests,” economist Bob Schwartz of Oxford Economics wrote in a note to clients. The mixed messages present a conundrum for a Federal Reserve grappling with whether to halt its aggressive wave of rate hikes this month or continue raising rates to cool the economy and, more critically, inflation.
Capital Economics is among several top research firms who believe the report contains enough signals of emerging weakness for the Fed to skip a hike at its upcoming meeting and see how the economy develops, especially with banks tightening lending standards following the collapse of several regional banks.
Among the signs of a declining labor market:
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What is unemployment today?
May’s unemployment rate jumped from a five-decade low of 3.4% to a still-healthy 3.7% as employment fell by a net 310,000 jobs, according to Labour’s household survey.
The jobless rate is based on a survey of 60,000 households and is generally considered less reliable than the poll of 122,000 businesses and government agencies that produced May’s headline job gain of 339,000.
The decline in payrolls in the household survey can also be traced to a large drop in unincorporated self-employed workers, a decline that the survey of businesses does not capture, says economist Dante DeAntonio in Moody’s Analytics.
Still, the household survey shows almost 2 million fewer workers overall than the establishment survey, Barclays notes, reflecting a long-term difference. And economists say that the household survey is generally better at highlighting turning points in the economy and the labor market, for example when the economy is headed for recession.
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What is the most common work week?
The average number of hours worked by US workers fell from 34.4 to 34.3 in May, the lowest level since the first days of the pandemic in April 2020. It shows that consumer demand may be slowing, but employers are choosing to keep workers – a practice known as labor hoarding – due to persistent covid-related labor shortages over the past couple of years, suggests Bank of America. Instead, they trim the hours of existing employees.
But that practice can only continue for so long if sales and profits don’t pick up. Earnings for S&P 500 companies fell 2.1% in the first quarter, the second straight quarterly decline, according to FactSet.
What is current wage growth?
Average hourly earnings rose 0.3% in May, down from a 0.4% increase the previous month. It shows that wage pressure is decreasing as the employers’ bargaining power strengthens in a cooling market, says Schwartz.
A big reason for that is that the share of Americans in prime working age (ages 25-54) who are employed or looking for work rose to 83.4% last month, the highest since May 2002, according to figures from Oxford and Labor. Several people who have been sidelined by covid for health or child welfare reasons have filtered back into the workforce.
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Is it harder to get a job if you are unemployed?
The rate of unemployed workers finding work fell to 25.8% last month, the lowest level since August 2021, data from Oxford and The Liscio Report, a research publication, showed. In other words, companies are hanging on to the workers they have, but they are becoming more cautious about hiring new employees.
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How long are most people unemployed?
As a result, unemployed workers are idling longer. The average length of unemployment rose for the third consecutive month, from 19.3 weeks in February to 21.2 weeks in May, according to figures from Oxford and Labour.
