Everything you need to know about the May jobs report

June 7, 2013

Happy jobs day! The Labor Department announced Friday that the U.S. economy added 175,000 jobs in May and that the unemployment rate ticked up to 7.6 percent, from 7.5 percent in April. Here's a rundown of the what you need to know about the latest numbers, the reaction from markets and the Fed, and more.

AFP PHOTO/Brendan SMIALOWSKIBRENDAN SMIALOWSKI/AFP/Getty Images
AFP PHOTO/Brendan SMIALOWSKIBRENDAN SMIALOWSKI/AFP/Getty Images

[liveblog]

White House and Republican reaction

Alan Krueger, chairman of the White House Council of Economic Advisers, has a blog post with his take on the jobs numbers. His tone fits closely with what he and other White House officials have been saying about the economy, in fitting with a report roughly matching expectations.

While more work remains to be done, today’s employment report provides further confirmation that the U.S. economy is continuing to recover from the worst downturn since the Great Depression. . . .

 

With the recovery gaining traction, now is not the time for Washington to impose self-inflicted wounds on the economy. The Administration continues to urge Congress to replace the sequester with balanced deficit reduction, while working to put in place measures to create middle-class jobs, such as by rebuilding our roads and bridges and promoting American manufacturing.  The President will continue to press Congress to act on the measures he called for in his State of the Union address to make America a magnet for good jobs, help workers earn the skills they need to do those jobs, and make sure their hard work leads to a decent living.

Congressional Republicans have a reaction of their own. Rep. Kevin Brady (R-Tex.), the chairman of the House Joint Economic Committee, said in a statement that the report contained "the good, the bad, and the ugly."

Today’s report again confirms that we need to take the chains off of the private economy. Government policies are stifling growth and job creation in the private sector

The good news is that for the 39th consecutive month the economy added private sector jobs.  The bad news is that this recovery has produced four million fewer private sector jobs than the average of other post-World War II recovery.

The really ugly news in this report is that a smaller percentage of adult Americans are working today than when the recession ended four years ago.  That’s not consistent with a real recovery.

Job market in charts!

Check out Dylan Matthews' presentation of the jobs report in seven charts. That's two more than usual!

Here's one, just to whet your appetite.


Markets are up

U.S. financial markets have opened, and they like what they see out of the labor market. The initial reaction suggests that the report hit a sweet spot: Good enough to suggest that the economy is expanding at a reasonable pace but not so good that the Federal Reserve will be tempted to prematurely wind down its easing policies.

The Standard & Poor's 500 index was up 0.6 percent at 9:35 a.m. Friday. The Dow Jones industrial average was up 0.5 percent or about 70 points.

Treasury bond prices fell and their yields rose, meanwhile, with the 10-year Treasury yielding 2.12 percent, up 0.05 percentage points in Friday's trading.

The dollar was up against the euro, yen and other major currencies, reflecting the solid economic numbers. The dollar index, capturing its value against six major currencies, was up 0.3 percent at 9:35 a.m.

Job market as musical chairs

Economist Jared Bernstein has his analysis of the jobs numbers out, with an apt metaphor for what is happening right now with the labor force. (Job creation was decent in May, but more than 400,000 people joined the labor force, so the unemployment rate ticked up). Here's Bernstein's metaphor:

What we have here is a high stakes game of musical chairs, as payrolls grow at a steady, if not-that-impressive, clip, essentially adding chairs to the game.  Meanwhile, more players are coming off the sidelines looking for places to sit.  Last month, there were more new players than seats.  In future months, we’ll keep a close eye on how that balances out.

Read his full analysis here.

Restaurants and bars a bright spot

One of the surprising (or not-so-surprising?) bright spots for job creation, in May and over the last year, has been in food services and drinking spots. Employment of waiters, cooks, bartenders and the like rose by 38,000 in May and is up 337,000 over the past year. That's about 16 percent of total job creation over the past year.

It makes sense on some level, as there is a longer-term shift toward people buying more of their food away from home. And restaurants are a sector where there have been fewer productivity gains than there are in other sectors, like manufacturing. A robot may be able to assemble a car, but a cook still grills burgers.

Mmmm. Burgers. (Andrey Rudakov/Bloomberg)
Mmmm. Burgers. (Andrey Rudakov/Bloomberg)

Broader unemployment measure down

While the headline unemployment rate ticked up one-tenth of a percent in May, a broader measure of joblessness actually showed slight improvement.

U-6, a measure of unemployment that includes people who have a part-time job but want full-time work and people who want a job but have given up looking out of frustration, fell to 13.8 percent in May, from 13.9 percent in April.

That measure has come down tremendously in the last year, from 14.8 percent in May 2012.

Where are the jobs?

What sectors are contributing to these job gains? Here are the big ones:

Professional and business services +57,000 jobs. This has been a mainstay of job creation in recent years. It also includes many government contractors; the fact that it remains on its recent trend suggests that contractors are not slashing jobs in large numbers in reaction to sequestration spending cuts.

Leisure and hospitality +43,000 jobs. This has been a bright spot in recent months and includes hotels and restaurants.

Retail trade +28,000. Another bright spot, suggesting resilience among American consumers.

Health care and education +26,000. Another mainstay of job growth in recent years.

And now the disappointments:

Construction +7,000. This long-challenged sector still isn't creating jobs on a meaningful scale, despite a housing resurgence.

Manufacturing -8,000. The bounce-back in factory jobs after the recession seems to have been a short-lived period of good news for manufacturing workers.

Government -3,000. The government sector has long been a drag on overall jobs numbers, and this time the feds are the culprit, not state and local governments. The federal government, excluding the postal service, shed 9,400 jobs, consistent with sequestration-related budget cuts. The postal service cut 3,800 jobs, and state governments cut 3,000 jobs. Local governments, however, added 13,000 positions, so the overall government employment was less negative than it otherwise would have been.

Twitter chatter on jobs

Here are some more thoughts from the Twitterati.

 

What about the Fed?

So, how will the Federal Reserve read the new numbers, and how might that influence the central bank's plans to wind down its $85 billion-a-month of bond purchases in the future?

Not much either way, in all likelihood. This is a report that seems broadly in line with what the Fed and private forecasters had expected out of the job market, which means that whatever Bernanke & Co. were thinking this time yesterday about "tapering" their quantitative easing policies, they should still think today.

A much stronger job growth number would have implied quicker tapering, while weak numbers would have suggested the central bank might consider expanding the purchases or at least further delaying their pullout.

Disappointing wage numbers

One disappointment in the report was on the wage side. Analysts had expected average hourly earnings to rise by 0.2 percent, but the report showed they were unchanged. Average weekly hours worked did go up slightly to 34.5 hours, from 34.4 hours.

The increase in hours was enough to drive average weekly earnings for all private employees up slightly to $824.21, from $823.26. But it is hardly a gain that will have American workers celebrating in the streets -- and that, in turn, will keep a lid on consumer spending as summer begins.

Why did unemployment rise?

You can't just look at the unemployment rate to understand how the jobs picture is changing;  you need to review its composition. In this case, even though unemployment rose to 7.6 percent in May from 7.5 percent the month before, the details of why were relatively favorable.

The number of people in the labor force rose by 420,000, the Bureau of Labor Statistics said, the main reason for the uptick in the jobless rate. The number of people who reported having a job, meanwhile, rose by 319,000.

The ratio of people with a job to the entire population was unchanged at 58.6 percent, meaning that the jobs picture is a bit better than the rise in the unemployment rate would imply.

Unemployment rate ticks up

The unemployment rate rose to 7.6 percent, from 7.5 percent in April, as the nation recorded solid job creation in May, the Labor Department said.

The department reported 175,000 net new payroll jobs, a bit better than the 165,000 forecast. However, April numbers were revised downward to 149,000, from 165,000.

The report is broadly in line with forecasts of solid, but unexceptional, expansion in the job market.

What the Twitterers are saying

Here's what some key economics Twitterers are saying in advance of the report.

 

 

Economics writers are an odd group.

Forecast: Solid gains

It's worth, as always, looking at what analysts expect the May jobs numbers to show. Forecasters surveyed by Bloomberg are looking for a net gain of 163,000 payroll jobs, which would be about the same as the 165,000 added in April.

They expect the unemployment rate to be unchanged at 7.5 percent.

It's worth adding that much of the chatter on Wall Street this week has been looking for a weaker number than official forecasts, given a weak ISM manufacturing survey number and weak ADP payroll number earlier in the week, combined with a recent track record of May numbers disappointing. The numbers are coming in t-minus 15 minutes to put the speculation to rest.

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Dylan Matthews | June 7, 2013