May jobs report: this is the kind of report you see at negative inflection points

 - by New Deal democrat

HEADLINES: 

• +75,000 jobs added
• U3 unemployment rate unchanged at 3.6%
• U6 underemployment rate declined -0.2% from 7.3% to 7.1% (new expansion low)

Leading employment indicators of a slowdown or recession

I am highlighting these because many leading indicators overall strongly suggest that an employment slowdown is coming. The following more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mixed m/m, but several are now sending significant negative signals.

• the average manufacturing workweek declined -0.1 from 40.7 hours to 40.6 hours. This is one of the 10 components of the LEI. It is down -0.7 hours from its peak during this expansion. This has now crossed the threshold to being consistent with an oncoming recession.
• Manufacturing jobs rose by 3,000. YoY manufacturing is up 184,000, a big deceleration from last summer’s pace.
• construction jobs rose by 4,000. YoY construction jobs are up 215,000, also a deceleration from last summer. Residential construction jobs, which are even more leading, fell by -100, the second monthly decline in a row, a signal that the housing slowdown from last year has finally bled through into jobs.

• temporary jobs rose by 5100, but April was revised down by about 4500. YoY these are up +44,000.
• the number of people unemployed for 5 weeks or less rose by 243,000 from 1,904,000 to 2,147,000. The post-recession low was last month.

Wages and participation rates

Here are the headlines on wages and the broader measures of underemployment:

• Not in Labor Force, but Want a Job Now: declined by -76,000 from 5.121 million to 5.045 million
• Part time for economic reasons: declined by -299,000 from 4.654 million to 4.355 million
• Employment/population ratio ages 25-54: unchanged at 79.7% (down -0.2 from its peak in January and February).
• Average Hourly Earnings for Production and Nonsupervisory Personnel: rose $.07 from  $23.31 to $23.38, up +3.2% YoY.  (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 an average of +14,500/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 by 500 for an average of +75/month in the past year vs. the last seven years of Obama's presidency in which an average of -300 jobs were lost each month

March was revised downward by -36,000. April was also revised downward by -39000, for a net change of -75,000.

Other important coincident indicators help  us paint a more complete picture of the present:

• Overtime was unchanged at 3.4 hours.
• Professional and business employment (generally higher-paying jobs) rose by 33,000 and  is up +498,000 YoY. This has also decelerated from last year’s pace.
• the index of aggregate hours worked for non-managerial workers fell by -0.3%

•  the index of aggregate payrolls for non-managerial workers rose by 0.1%  

Other news included:            

• the  alternate jobs number contained  in the more volatile household survey rose by 113,000  jobs.  This represents an increase of 1,219,000 jobs YoY vs. 2,350,000 in the establishment survey. This survey, which has been negative three months this year, was a major disconnect from the establishment number. The household survey has a tendency to turn first, and this month it showed up in the establishment survey.
• Government jobs fell by -15,000.

• the overall employment to population ratio for all ages 16 and up was unchanged at 60.6% m/m and is up 0.2% YoY.          
• The labor force participation rate was unchanged at 62.8% m/m and is unchanged YoY.

SUMMARY

The household survey has a reputation of turning first at inflection points. For the first four months this year, the household survey was poor, while the establishment survey was on a tear. This month, proving the adage, the establishment survey punted, even as the household survey improved somewhat.

Let me start with the positives: although it was small, job growth held up in the construction, manufacturing, and temporary jobs sectors (although residential construction jobs did decline slightly). On the margins of the employed, both involuntary part time employment, and those who aren’t looking but want a job now, declined, causing the underemployment rate to fall to yet another expansion low.

But there are plenty of negatives: not just the poor headline number, but the big negative revisions to the last two months (this is also something that tends to happen at turning points). The most leading of all the employment measures, the manufacturing workweek, is now down -0.7 hours from peak. Over the past 70 years, this has more often than not signaled a coming recession. The prime age employment to population ratio is now significantly down from its expansion peak at the beginning of this year. Aggregate hours for non-managerial workers also declined, as did the rate of YoY wage growth.

So far this year jobs have grown by an average of 164,000 a month. YoY job growth has now significantly turned down from its peak at the beginning of this year.

This kind of report does not scream “recession,” but on the other hand it is consistent with the onset of recession by the end of this year. Because inflation is under the Fed’s target, it will make it very easy for the Fed to justify a rate cut, possibly as early as this month’s meeting.