Weak(ish) May Jobs Report

By Thomas Cooley and Peter Rupert

The May jobs report was certainly on the weaker side. The BLS data show an increase in payroll employment of 138,000 with downward revisions totaling 66,000 (down 29,000 in March and 37,000 in April). The service sector provided 131,000 additional jobs. The largest contributors in the service sector were Education and Health services, up 47,000, and Professional and Business Services, up 38,000.

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The volatile Mining sector continues to expand, up 6,000 and the 7th straight month adding employees. Manufacturing and Construction employment are still nearly 10% below the level back in January, 2008.

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Average weekly hours remained at 34.4. Average hourly earnings ticked up slightly.

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The household survey showed a large decrease in the labor force, down 429,000, leading to a decline in the participation rate, from 62.9 to 62.7.  The number of employed persons was down 233,000 and the number of persons unemployed was down 195,000. The employment to population ratio fell from 60.2 to 60.0. The unemployment rate fell slightly from 0.044 to 0.0429.

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The  next two charts indicate there is something missing in the labor market picture.  Vacancies are at record levels and the unemployment rate is at a decade low and yet average hourly earnings have barely budged.  This, combined with low and falling participation rates, suggests that there is indeed something missing.  That something is human capital.  Jobs that can be routinized and require low levels of human capital are being replaced by technology. The education system is not producing the kinds of workers that are  needed in many parts of the economy.  The loss of jobs to robotics and AI is more likely to speed up than slow down and changing our human capital is a slow process.

Although there has been a lot of chatter about the Fed downplaying the previous GDP report and feeling confident the economy about the continued strength of the economy, there are certainly some signs the economy has deep seated weakness. Maybe not enough to dissuade the Fed from a June increase, but certainly to give some pause in their commentary.

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