Friday, June 1, 2018

May jobs report: excellent news on unemployment, underemployment, and wages

- by New Deal democrat

  • +223,000 jobs added
  • U3 unemployment rate fell -0.1% from 3.9% to 3.8%
  • U6 underemployment rate fell -0.2% from 7.8% to 7.6%
Here are the headlines on wages and the braoder measures of underemployment:

Wages and participation rates
  • Not in Labor Force, but Want a Job Now:  up 68,000 from 5.115 million to 5.183 million   
  • Part time for economic reasons: down -37,000 from 4.985 million to 4.948 million
  • Employment/population ratio ages 25-54:  unchanged at 79.2%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: rose $.07 from  $22.52 to $22.59, up +2.8% YoY. This is the highest nominal YoY gain for the entire expansion.  (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)      
Holding Trump accountable on manufacturing and mining jobs

 Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise?  
  • Manufacturing jobs rose 18,000 for an average of 22,000/month in the past year vs. the last seven years of Obama's presidency in which an average of 10,300 manufacturing jobs were added each month.   
  • Coal mining jobs rose 300 for an average of 110/month vs. the last seven years of Obama's presidency in which an average of -300 jobs were lost each month
March was revised upward by 20,000. April was revised downward by -5,000, for a net change of 15,000.   

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mixed.
  • the average manufacturing workweek declined -0.2 hours from 41.0 hours to 40.8 hours.  This is one of the 10 components of the LEI.
  • construction jobs increased by 25,000. YoY construction jobs are up 286,000.  
  • temporary jobs decreased by -7800. 
  • the number of people unemployed for 5 weeks or less decreased by -81,000 from 2,115,000 to 2,034,000.  This is a new post-recession low.
Other important coincident indicators help  us paint a more complete picture of the present:
  • Overtime declined -0.2 hours from 3.7 hours to 3.5 hours.
  • Professional and business employment (generally higher-paying jobs) increased by 23,000 and  is up +206,000 YoY.

  • the index of aggregate hours worked in the economy rose by 0.2%.
  •  the index of aggregate payrolls rose by 0.5%.     
Other news included:            
  • the  alternate jobs number contained  in the more volatile household survey increased by  +293,000  jobs.  This represents an increase of 2,582,000 jobs YoY vs. 2,363,000 in the establishment survey.      
  • Government jobs increased by 5,000.       
  • the overall employment to population ratio for all ages 16 and up rose 0.1% to 60.4  m/m  and is up 0.4% YoY.          
  • The labor force participation rate declined -0.1% to 62.7  m/m and is unchanged YoY  


This was an excellent report with only a few drawbacks. Both unemployment and underemployment fell to rates not seen since the turn of the Millennium. Perhaps more significant, average hourly earnings for nonsupervisory workers increased at the highest rate since 2009. The trend over the last 6 months has been rising, and it appears that ordinary workers are finally getting a little wage traction.

Other good news included the continued decline in involuntary part-time employment, and the decline in short term unemployment to its lowest level in the expansion.

There were a few negative notes, including an increase in discouraged workers, a decline in the manufacturing workweek (which really just took back April's gain), a decline in the leading temp jobs number, and a deceleration in gains in the higher-paying business and professional category. Further, undoubtedly this report will signal to the Fed that it is OK to raise interest rates again.

This report was a continuation of the recent string of very good reports, as last autumn's big increase in consumer spending feeds through into jobs. I nevertheless expect the late cycle trend of deceleration to re-assert itself over the next few months.