Friday, June 02, 2017

Comment: A Disappointing Employment Report

by Bill McBride on 6/02/2017 10:00:00 AM

The headline jobs number was below expectations, and there were combined downward revisions to the previous two months.   Is this is slowdown in hiring a short term issue, part of the normal business cycle, or due to a Trump Slump? My view is this slowdown in hiring is mostly part of the normal business cycle (my expectation was job growth would slow further this year).

There was still some good news - especially with the unemployment rate falling to 4.3% (lowest since 2001), and U-6 falling to 8.4% (lowest since 2007).  But overall this was a disappointing report.

Earlier: May Employment Report: 138,000 Jobs, 4.3% Unemployment Rate

In May, the year-over-year change was 2.26 million jobs. Still decent job growth.

Average Hourly Earnings

Wages CES, Nominal and RealClick on graph for larger image.

This graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report. Note: There are also two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation.

The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees.  Nominal wage growth was at 2.5% YoY in May.

Wage growth has generally been trending up.

Part Time for Economic Reasons

Part Time WorkersFrom the BLS report:

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed at 5.2 million in May. These individuals, who would have preferred full-time employment, were working part time because their hours had been cut back or because they were unable to find a full-time job.
The number of persons working part time for economic reasons decreased in May. The number working part time for economic reasons suggests a little slack still in the labor market. This is the lowest level since March 2008.

These workers are included in the alternate measure of labor underutilization (U-6) that decreased to 8.4% in May. This is the lowest level for U-6 since November 2007.

Unemployed over 26 Weeks

Unemployed Over 26 WeeksThis graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 1.66 million workers who have been unemployed for more than 26 weeks and still want a job. This was up from 1.63 million in April.

This is generally trending down, but still a little elevated.

Although U-6, the number of persons employed part time for economic reasons, and the number of long term unemployed are still a little elevated, it appears the economy is nearing full employment. Overall this was a disappointing report.