May’s almost-good jobs report

May’s almost-good jobs report

The business news world eagerly awaited the May employment numbers with expectations of 671,000 net new jobs added in the month.  However, the report showed only 559,000 added jobs with 492,000 of those private sector and 67,000 new government employees. Importantly, there was a slight drop in the labor force participation rate in May to 61.6 percent and it remained below the pandemic level of August 2020, which had recovered half the decline that occurred in April 2020 when the economy was in the deepest part of the COVID lockdown.  Unfortunately, and worrisomely, the labor force participation numbers throughout the year so far have been flat and remain well below the pre-pandemic number of January 2020 (63.4 percent).

Within the job count itself, two major facts appear.  Goods-producing jobs were essentially flat as a loss of 20,000 in construction was offset by a 23,000 gain in manufacturing.  Note the May 2021 manufacturing employment figure at 12,290,000 is 527,000 behind the May 2019 number and is the lowest May reading since May 2016.  In April 2020 manufacturing fell 1.385 million below the February 2020 reading. February is used since the March numbers had already shown some weakness due to pandemic concerns. By December 2020, 817,000 of the jobs lost in April had been recovered. So far in 2021 only a scant 59,000 more have been added to December’s count.  Not encouraging at all.

The construction employment loss is truly alarming unless it was due to seriously inclement weather. It might also reflect the “protect the environment” policy actions.  Mining jobs, which include oil and gas production as well as metals and coal, are flat in large part because of actions being taken to reduce drilling and transportation of oil as well as coal production.

Thus, the growth in private-sector jobs was almost entirely accounted for by service-providing jobs—up 489,000.  While most major service-providing categories were up, 60 percent of the rise occurred in the hard-hit leisure and hospitality sector (292,000 jobs). These are typically the lowest paid jobs and thus the impact on GDP growth is much smaller than if the same number of goods-producing jobs had been created.

There was a solid 87,000 jump in health and education, although many health care and social assistance jobs are not highly paid. Information, transportation, professional services and wholesale employment posted solid increases in May. Interestingly, retail and finance jobs were flat to down slightly.

It is important to bear in mind that the index of total hours worked in the private sector (government hours are not compiled by the Labor Department) stood at 112.00 in February 2020. The index sets the 2012 and 2013 average at 100.  In May 2021, the index stood at 108.0 (down 3.6 percent).  Thus, the hours worked remain significantly below the pre-pandemic level. Moreover, total private employment remained 6.46 million below the February 2020 peak level of 129.7 million jobs (about 5 percent). The small difference in the percent decline in hours and the drop in employment is owing primarily to the fact that the work week for the leisure and hospitality sector and some other service jobs that were hit hardest by lockdowns is shorter than the other private sectors.

Finally, note that 67,000 (12 percent) of the 559,000 total increase in nonfarm employment were government jobs.  The May count of 21,668,000 government employees is 1,167,000 below the all-time high set in February 2020.  However, it has moved well above the May 2020 low point of 21,314,000. It appears set to continue moving higher.

Overall, the jobs report contains some good news.  But the failure of goods-producing jobs to grow means the picture lacks the robustness of a sustainable positive trend. And with inflation picking up, inflation-adjusted wages could continue to shrink as they have during the last few months. 

Items that need watching for sure.