June 07, 2024
The economy added 272,000 new jobs in May, again exceeding expectations. This is somewhat above its average of 230,000 per month over the last year. The prior two months of growth were revised down by 15,000, but that does not qualitatively change the picture. We still are not seeing a slowing of job growth.
The unemployment rate edged up to 4.0 percent, bringing an end to the 27-month streak of below 4.0 percent, which tied the streak from the late 1960s boom. There is still an issue of rounding since the actual rate for May was 3.96 percent.
Wage Growth Picks Up Slightly
The average hourly wage grew at a 4.1 percent annual rate over the last three months, the same as its pace over the last year. This compares to the 3.3 percent annual rate for the two years prior to the pandemic when the inflation rate was slightly below the Fed’s 2.0 percent target. With the profit share still above its pre-pandemic level, and productivity possibly growing somewhat faster, this pace of wage growth may still be consistent with the Fed’s target.
Index of Aggregate Hours Up 0.2 Percent from a Downwardly Revised April Number
The index of aggregate weekly hours worked was up 0.2 percent in May, but the April figure was revised down. The May number is 0.4 percent above the first-quarter average. This suggests that we could still see a healthy productivity number with 2.6 percent growth in the quarter (the latest GDPNow number).
After three quarters of extraordinary productivity growth in 2023, the first quarter growth of just 0.2 percent was a disappointment to those looking for evidence of an uptick in productivity growth. However, the quarterly data are always erratic, and given the strength of the prior three quarters, a weak quarter was not altogether a surprise. Over the prior year, productivity was still up 2.9 percent. If we are on a faster productivity growth path, we can support a faster rate of wage growth without creating inflation.
Gap Between Establishment Survey and Household Survey Expands with May Data
The 272,000 jobs reported in the establishment survey went along with a drop in employment of 408,000 in the household survey. Over the last year, the establishment survey shows a gain of 2,756,000 jobs compared to just 376,000 in the household survey, leaving an extraordinarily large gap of 2,380,000. It is likely that the population controls for the household survey are missing people, but if the household survey is closer to the mark, then productivity growth is understated.
Health Care Again Leads Job Growth
Health care continued to lead job growth adding 68,300 in May, in line with its 65,000 average over the last year. Other big job gainers were local governments, which added 34,000 jobs, and restaurants, which added 24,600 jobs.
Construction and manufacturing continue to add jobs, 21,000 and 8,000, respectively. These are the most interest-sensitive sectors of the economy, so the continued job growth indicates the limited impact of the interest rate hikes to date. This is likely due to the peculiar circumstances of the pandemic, with the supply chain crisis leaving a large backlog of unfinished homes, coupled with the stimulus provided by the infrastructure bill, the CHIPS Act, and the Inflation Reduction Act.
Prime-Age Employment to Population Ratio for Women Hits New Record High
The employment to population ratio (EPOP) for prime-age (25 to 54) women hit a new record high of 75.7 percent in May. For men, the EPOP drifted down 0.1 percentage points to 86.0 percent, 0.7 percentage points below the pre-pandemic peak. The overall rate at 80.8 percent is 0.3 percentage points above the pre-pandemic peak, but still somewhat below peaks hit in 2000.
Black Unemployment Rate Rises to 6.1 Percent
Black unemployment rose 0.5 percentage points to 6.1 percent. The data are erratic, but it seems likely that the true rate is now closer to 6.0 percent than 5.0 percent. The all-time low of 4.8 percent was hit last April.
Share of Unemployment Due to Voluntary Quits Falls to 10.8 Percent
The share of unemployment due to people voluntarily quitting their jobs has been unusually low given other measures of labor market strength. It fell to 10.8 percent last month, the lowest since September 2021. It averaged 13.1 percent in 2018–2019.
The willingness of people to quit a job before they have a new job lined up is usually seen as a measure of people’s confidence in the strength of the labor market. The fall in this measure can be seen as a negative, although it is possible that with all the turnover we saw earlier in the recovery people are now happy with their jobs and are less anxious to quit.
Part-Time for Economic Reasons Falls Slightly
The number of people who report working part-time for economic reasons fell by 50,000 in May. This is a modest drop, but it is worth noting that the vast majority (almost 84 percent) of people reporting they work part-time are doing so voluntarily. The share of part-time employment is not especially high in this recovery, but it is worth noting that part-time is overwhelmingly by choice and not obviously a negative feature of the economy.
May Jobs Report Indicates the Labor Market Remains Strong
The labor market continues to remain very strong, contrary to widespread expectations of some slowing. Wage growth also appears to be on a relatively stable path, at a pace that is somewhat more rapid than what we saw in the years just before the pandemic. Whether this pace proves to be consistent with the Fed’s 2.0 percent inflation target depends on what happens to profit shares and productivity growth.
The refs will have to decide whether the 3.96 percent unemployment rate for May allows us to pass the 27-month streak of below 4.0 percent unemployment set in the 1960s. It is nonetheless striking how much better the labor market has done than was projected before the recovery package was approved.
In February 2021, the Congressional Budget Office (CBO) projected that the unemployment rate would gradually drift down from its 6.0 percent rate at the time, first crossing below 5.0 percent in the third quarter of 2022. It was projected to still be 4.4 percent in the current quarter of this year. Instead, it fell to 3.9 percent in December 2021 and has remained below 4.0 percent since February 2022.
The CBO projected that the economy would generate 9.2 million jobs between the first quarter of 2021 and the second quarter of this year. The actual job growth over this period has been over 15 million. It is hard not to see this as a very positive picture.
