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MAY JOBS REPORT DEEP DIVE: HOT + COLD = JUST RIGHT (1115 EDT/1515 GMT)
The hotly anticipated May jobs report delivered a Goldilocks porridge of good news and bad news – good enough to indicate ongoing labor market recovery but sufficiently underwhelming to ensure the Fed will hold its dovish course.
“Overall, today’s report does provide progress in the right direction,” writes Charlie Ripley, senior investment strategist for Allianz Investment Management. “But it also raises uncertainty around the inflation debate with wage pressures beginning to creep into the labor market.”
The data showed a gain of 559,000 jobs USNFAR=ECI last month, about double the previous month’s increase but below consensus. (Full Story)
With this advance, the U.S. economy remains 7.6 million shy of the total employed as of February 2020, having recovered around two-thirds of the jobs lost after measures to contain the pandemic brought the labor market to its knees.
The unemployment rate USUNR=ECI surprised to the upside, shedding 0.3 percentage points to 5.8% a hair lower than the 5.9% analysts expected.
So let’s taste some porridge.
Reason to be cheerful: those unemployed 27 weeks or longer eased to a still-elevated 40.9% of the total, as those who have been jobless for 5 to 26 weeks – roughly dating back to the passage of the December stimulus package – increased their share of the pie, to 37% of the total.
Reason to be wary: the percentage those unemployed for fewer than five weeks pulled back to 22.1% of the total, mirroring the steady decline in initial jobless claims and further reflecting a tight labor market.
While that’s a good thing, it does support recent business surveys that indicate employers are having a hard time finding workers to meet booming demand.
Glass half full: long-stagnant wages are increasing even as lower-paid customer-facing services employees begin to return to the workforce.
Glass half empty: wage inflation is a growing concern.
The previously-mentioned tight labor market has pointed to a shortage of workers as companies struggle to keep up with demand, and some analysts have raised concerns that generous emergency unemployment benefits are keeping lower-wage workers home.
But those generous benefits alone aren’t responsible for the worker scarcity.
As Rubeela Farooqi, chief U.S. economist at High Frequency Economics points out, “ongoing pandemic-related issues including childcare and health concerns are likely a constraint on job growth.”
To sweeten the deal, many employers have hiked wages to entice workers, as reflected by the year-on-year average hourly earnings growth of 2%, which blew past the expected annual increase of 1.6%.
Good news: the drop in the unemployment rate – not to mention the so-called “real” unemployment rate, which includes nominally attached and those working part-time for economic reasons – is impressive, given the fact that the labor market participation rate inched even lower last month to 61.6%.
Bad news: the labor market participation rate fell last month to 61.6%.
“The participation rate is disappointing,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. “It’s still low and I guess that’s a sign that people that are low paid workers have no interest in returning because they’re making more money staying home.”
Even if a worker is collecting unemployment payments or is out of work but looking for a job, they are still considered part of the labor force.
Sunny side: the racial/ethnic unemployment gap narrowed last month, while down for Black, Hispanic, Asian and white workers.
Shady side: joblessness among Black Americans remains 4 percentage points higher than whites, at 9.1% versus 5.1%.
Wall Street appeared to find this Goldilocks porridge neither too hot nor too cold, but just right.
All three major stock indexes were green, with tech .SPLRCT and chips .SOX taking a healthy lead.