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Thursday, June 03, 2021

May Employment Preview

by Calculated Risk on 6/03/2021 12:22:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for May. The consensus is for 650 thousand jobs added, and for the unemployment rate to decrease to 5.9%.

Some analysts are being cautious this month after the disappointing April report.   

Employment Recessions, Scariest Job Chart• First, currently there are still about 8.2 million fewer jobs than in February 2020 (before the pandemic).

This graph shows the job losses from the start of the employment recession, in percentage terms.

The current employment recession was by far the worst recession since WWII in percentage terms, but is now better than the worst of the "Great Recession".

ADP Report: The ADP employment report showed a gain of 978,000 private sector jobs, well above the consensus estimate of 650,000 jobs added.  The ADP report hasn't been very useful in predicting the BLS report, but this suggests the BLS report could be above expectations.

ISM Surveys: Note that the ISM services are diffusion indexes based on the number of firms hiring (not the number of hires).  The ISM® manufacturing employment index decreased in May to 50.9%, down from 55.1% last month.   This would suggest approximately 15,000 manufacturing jobs lost in May. ADP showed 52,000 manufacturing jobs added.

The ISM® Services employment index decreased in May to 55.3%, from 58.8% last month.   This would suggest over 200,000 service jobs added in April. ADP showed 850,000 service jobs added.

Unemployment Claims: The weekly claims report showed a sharp decline in the number of initial unemployment claims during the reference week (include the 12th of the month) from 566,000 in April to 444,000 in May. This would usually suggest a pickup in hiring, although this might not be very useful right now. In general, weekly claims have been lower than expectations.

Year-over-year change employmentPermanent Job Losers: Something to watch in the employment report will be "Permanent job losers". While there has been a strong bounce back in total employment, from the shutdown in March and April 2020, permanent job losers had been flat over the last several months.

This graph shows permanent job losers as a percent of the pre-recession peak in employment through the April report.

This data is only available back to 1994, so there is only data for three recessions. In April, the number of permanent job losers increased slightly to 3.529 million from 3.432 million in March.

Conclusion: The ISM surveys suggest a weaker than expected jobs report, but the ADP report and unemployment claims suggest a stronger than expected report.  

As far as the pandemic, the number of daily cases during the reference week in May was around 35,000, down sharply from around 67,000 in April.   And vaccinations continue to increase.  These are strong positives for the job market.

So my guess is the report will be above the consensus.