May jobs report: about as poor as an expansiony report could be

 

 - by New Deal democrat



Even before the new Administration took office in Washington, my focus had been on whether the economy would have a “soft” or “hard” landing, i.e., recession. That has only intensified by the utter chaos of tariff-palooza! So my focus now is looking for “hard” vs.”soft” data indicating its impact.

This month’s employment report was ambiguous on that score, but otherwise was about as poor as a jobs report could be and still be expansionary.

Below is my in depth synopsis.

HEADLINES:

• 139,000 jobs added. Private sector jobs increased 140,000. Government jobs declined by -1,000. The three month average was an increase of +135,000, about average for this year, but above the lowest average last summer.
• The pattern of downward revisions to previous months continued this month. March was revised downward by another -65,000, and April was revised downward  by -30,000, for a net decrease of -95,000.
• The alternate, and more volatile measure in the household report, declined by -696,000 jobs. On a YoY basis, this series increased 2,109,000 jobs, or an average of 176,000 monthly.
• The U3 unemployment rate was unchanged at its repeated 12 month high of 4.2%. Since the three month average is 4.2% vs. a low of 3.933% for the three month average in the past 12 months, or an increase of 0.267%, this means the “Sahm rule” remains un-triggered. 
• The U6 underemployment rate was unchanged at 7.8%, down -0.2% from its 3+year high in February.
• Further out on the spectrum, those who are not in the labor force but want a job now rose sharply by 319,000 to 5.991 million, its highest level since July 2021.

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn. This month they were mainly negative:

• the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, rose 0.1 hour to 41.0 hours, but remains down -0.6 hours from its 2021 peak of 41.6 hours.

• Manufacturing jobs decreased by -8,000. This series had been  in sharp decline, but even with this month’s decline it has generally leveled off in the past eight months.
• Within that sector, motor vehicle manufacturing jobs rose 400.
• Truck driving ended its two month rebound, declining -900.
• Construction jobs increased another 4,000.
• Residential construction jobs, which are even more leading, rose 3,600 to yet another post-pandemic high.
• Goods producing jobs as a whole declined -5,000 from their 17 year high set last month.  These jobs typically decline before any recession occurs. But on a YoY% basis, these jobs are only 0.2%, which is very anemic although not necesarily recessionary.

• Temporary jobs, which have declined by over -550,000 since late 2022, declilned again this month, by -20,200, setting a new post-pandemic low.
• the number of people unemployed for 5 weeks or fewer increased 264,000 to 2,451,000, just below its 12 month high of 2,465,000 last August.

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.12, or +0.4%, to $31.18, for a YoY gain of +4.0%, which is an average YoY gain for the past 12 months. Importantly, this continues to be well above the 2.3% YoY inflation rate as of last month.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers rose a small 0.1% to a new record high. This measure is also up 1.1% YoY, about average for the past two years.

• The index of aggregate payrolls for non-managerial workers also rose 0.5%, and is up 5.2% YoY, about average for the past 12 months. This is also well above the inflation rate, meaning a continuation in the ability of households to increase consumption.

Other significant data:

• Professional and business employment declined -18,000. These tend to be well-paying jobs. This series peaked in May 2023, bottomed in October 2024, and is up less than 0.2% since then. It remains lower YoY by -0.4%, which in the past 80+ years - until now - has almost *always* meant recession. This is vs.  last spring when it was down -0.9% YoY.
• The employment population ratio declined -0.3% to 59.7%, vs. 61.1% in February 2020.
• The Labor Force Participation Rate declined -0.2% to 62.4%, vs. 63.4% in February 2020.

SUMMARY

Although the headline numbers were positive to neutral, this was about as poor a report as could be during an expansion. 

To begin with, the only reason the unemployment and underemployment rates did not go up was that the labor force participation declined significantly. The employment/population ratio also declined. Further out on the spectrum, those not in the labor force but who want a job increased to over a 3 year high. And the number of those laid off for fewer than 5 weeks also increased.

Additionally, most leading sectors declined, including manufacturing, trucking, temporary help, and even goods-producing jobs as a whole. Professional and business employment also declined, as did government employment. The pattern of downward revisions to previous months also continued.

Aside from the headline jobs number, the only bright spots were the slight increase in the manufacturing work week, and the continued rise in construction, and specifically residential construction jobs. Average and aggregate earnings for nonsupervisory workers also held up well.

It continues to be very surprising how well construction employment is holding up. If those turn down in sync with manufacturing, and real aggregate payrolls stall, almost all the ducks would be lined up to signal a recession is likely in the next few months.