The rate of job growth slowed somewhat in May, as the economy created 139,000 new jobs. The prior two months’ numbers were revised down by 95,000, bringing the three-month average to 135,000 jobs. The unemployment rate held steady at 4.2 percent, keeping the unemployment rate in the narrow range between 4.0 percent and 4.2 percent that it has been in since last May.

Healthcare Adds 62,200 Jobs, Again Leading Growth

The healthcare sector has led employment growth throughout the recovery. The 62,200 gain in May accounted for almost 45 percent of the month’s job growth. It was considerably higher than the 44,200 average gain over the 12 months to April, but this is partly explained by April’s originally reported gain being revised down to a loss of 17,400 jobs. The growth prospects for the sector going forward are likely to be dampened by the prospect of federal budget cuts.

The state and local government sector – which has consistently been the second leading job gainer – added 21,000 jobs in May (all in local), slightly less than its average of 26,800 over the year to April. The job gain at the state and local level did not quite offset the loss of 22,000 jobs at the federal level. Employment at the federal level is now 42,000 below its year-ago level.

Manufacturing Employment Continues Downward Path, Construction Edges Higher

The manufacturing sector lost 8,000 jobs in May, while construction added 4,000. Manufacturing employment has been on a modest downward path since peaking at 12,900,000 in February of 2023. Its current level of 12,761,000 jobs accounts for just under 8.0 percent of total employment. Most of the job loss has been in durable manufacturing, which shed 127,000 jobs during this period.

Construction has been showing modest gains, adding an average of 11,000 jobs a month in the 12 months prior to April. While these highly cyclical sectors are both showing some weakness, this is not the large-scale job loss that we typically see at the start of a recession.

Professional and Technical Services Continue to Lose Jobs

The high-paying professional and technical service sector lost 1,900 jobs in May. Employment in the sector is now down by 4,900 since its peak in December. It had been adding an average of 5,000 jobs a month over the prior year.

Restaurants added 30,200 jobs in May. This is considerably more rapid than their average pace of 10,600 jobs in the year up to April, although this is partly offsetting a big decline in January. The May figure is just 25,000 above the December level.

Wage Growth Remains Healthy

The year-over-year rate of wage growth was 3.9 percent, in line with its average since late 2023. The annualized rate over the last three months was almost identical at 3.8 percent. With productivity dropping at a reported 1.5 percent annual rate in the first quarter, it is difficult to compare the current pace of wage growth to assess its impact on inflation. Clearly the first quarter productivity number was an aberration, but it’s not clear whether we will bounce back to the strong rate of productivity growth we saw in the recovery from the pandemic.

 Employment-to-Population Ratio Falls to 59.7 Percent

There were some discouraging signs in the household survey, most notably a drop of 0.3 percentage points in the employment-to-population (EPOP) to 59.7 percent, the lowest level since January of 2022. A drop in this ratio is not by itself surprising, with more baby boomers hitting retirement age, but this is a large one-month change. There was also a drop of 0.2 percentage points for prime-age workers to 80.5 percent, which is 0.4 percentage points below the peak for the recovery.

Young Workers Continue to Have Troubles

The unemployment rate for workers between the ages of 20-24 remained at 8.2 percent, 2.2 percentage points above the low hit in January of 2024. Their EPOP fell to 65.4 percent in May, 2.8 pp below the peak hit last January.

Unemployment Rate for Black Women Rises to 6.2 Percent

The labor market for Black women is continuing to weaken, as their unemployment rate edged up to 6.2 percent. This is the highest unemployment rate since February of 2022.

Share of Unemployment Attributable to Quits Falls to 9.8 Percent

Perhaps the most concerning item in this report was the drop in the share of unemployment due to voluntary quits, which fell to 9.8 percent, the lowest since May of 2021. By comparison, the share averaged 13.2 percent in 2018-2019, when the unemployment rate was roughly comparable. This suggests workers have little confidence in labor market prospects, so they are reluctant to quit a job until they have a new one lined up.

 Another Healthy Jobs Report in May

The overall picture in May continues to be positive, although there are some grounds for concern. The total jobs growth number of 139,000 is very respectable given the aging of the workforce. With immigration slowing to trickle, or possibly turning negative due to deliberate policy, we should not be seeing rapid growth of the labor force.

Nonetheless, there are some signs that are troubling. The job growth was heavily concentrated in healthcare. There is nothing necessarily wrong with this, but given the cuts the sector may be facing in the year ahead, it seems unlikely that it will maintain a robust pace of job growth.

We are also seeing weakness in the labor market for young people. They are likely to see a deterioration in the labor market first, since they are the ones most likely to be looking for jobs. Also, the sharp drop in the share of unemployment due to voluntary quits suggests that workers are concerned about their labor market prospects. At the very least, this is likely to translate into slower wage growth, which would be a problem for both workers and economic growth.