The U.S. labor market showed its continued resilience added more jobs than expected in May. There were 339,000 Nonfarm Payroll jobs added, ahead of the consensus estimate for 190K. There were expectations of a positive beat with May ADP employment at 278,000 (consensus 170,000). This is the 15th consecutive report that has beaten the economist consensus. Unemployment rate 3.7% vs 3.5% expected and highest since October 2022. The May report is sparking selling in Treasurys, sending yields higher. The resiliency of the labor market continues to raise the odds of further tightening from the Federal Reserve. Ahead of the report, the market was pricing a 29% chance of a Fed hike on June 12
Key from the May report is that it was a strong report for this point in the Fed’s tightening cycle. There is now the New debt cap funding causing an additional headache at the June FOMC meeting.
May 2023 US Employment Report
The jobless rate was 3.7% in May the Labor Department reported Friday. The unemployment rate is back up from the pandemic rate of 3.5%, which was a 50-year low. (This was bettered in Jan at 3.4%) The job market is still tight, with the national unemployment rate hovering near half-century lows.
Job growth is moving away from sectors that benefited from growth drivers earlier in the pandemic toward the sectors that serve the innate desire to get back to more normal activities and have worker shortages as evidenced by high job vacancies. In nutshell layoffs are being absorbed by the job market in this rotation.
May 2023 US Employment Report and Expectations
Highlights
Employment
- Change In Nonfarm Payrolls May: 339K (exp 195K; prevR 294K)
- Unemployment Rate May: 3.7% (exp 3.5%; prev 3.4%)
- Labour Force Participation Rate May: 62.6% (exp 62.6%; prev 62.6%)
- Prior two-month net revision May: +93K (prevR -149K) with employment gains under reported.
The unemployment rate and number of unemployed persons prior to the coronavirus (COVID-19) pandemic was 3.5 percent and 5.7 million, respectively, in February 2020). The number of employed persons in The United States decreased to 160,721,000 in May of 2023 from 161,031,000 in April of 2023
- Change In Private Payrolls May: 283K (exp 165K; prevR 253K)
- Change In Manufacturing Payrolls May: -2K (exp 5K; prevR 10K)
- Household survey May: -310K vs +139K prior
- Underemployment Rate May: 6.7% (prev 6.6%)
- Birth-death adjustment May: +231K vs +378K prior
- Long-term unemployed May: 1.1mil vs (prev 1.1m, 1.2m pre-pandemic)
- The long-term unemployed rose to 0.69 percent in April from 0.66 percent in March of 2023
- The employment-population ratio May 60.3% vs (prevR 60.4%, 61.2% before pandemic)
Earnings
- Average Hourly Earnings (M/M) May: 0.3% (exp 0.3%; prevR 0.4%)
- Average Hourly Earnings (Y/Y) May: 4.3% (exp 4.4%; prev 4.4%)
- Average Weekly Hours All Employees May: 34.3 (est 34.4; prev 34.4
- Payrolls benchmark NSA revision for 2022 was in Jan 23
- Payroll benchmark SA 2022 was in Jan 23
Other April Employment Reports
- ADP employment 278K vs 170K expected
- ISM manufacturing employment 51.4 vs 47.1 prior
- ISM services employment 51.3 vs 50.8
- Challenger Job Cuts +80.1K vs +67.0K prior
- Philly employment -8.6 vs -0.2 prior
- Empire employment -3.3 vs -8.0 prior
- Initial jobless claims survey week 225K vs 252K expected
- US Job Openings Unexpectantly Rise First Time in Four Months
The market had expected the April report released Friday to show nonfarm payrolls rose 180k new jobs. April continues the drop as higher interest rates and prices started to weigh on the economy. Private payroll company ADP reported that US private sector jobs grew by 296,000 (consensus 142,000) following a downwardly revised 142,000 in March.
A severe labor shortage had driven up annual wage increases above 5% every month of this year until the last quarter. By contrast, wage gains averaged 3.2% in the 12 months to February 2020. Wage growth rose last month with, average hourly earnings rose by +0.5% m/m vs +0.3% expected in April from a month earlier. They were up 4.4% from a year earlier.
Employers hired across industries. Companies in certain industries that are vulnerable to interest-rate increases, such as technology and real estate, have announced layoffs. Some firms have implemented hiring freezes.
Participation
Labor force participation rate moved up from 62.6% to 62.6% prior; rate for women moved up to highest since pandemic started. Participation is down from 63.4% in February 2020.
Still a major bright spot: prime-age labor force participation rate rose again in May; now at highest since January 2007 @LizAnnSonders
Market Reaction
- The S&P 500 futures are up 19 points and are trading 0.4% above fair value.
- The Nasdaq 100 futures are up 55 points and are trading 0.3% above fair value.
- The Dow Jones Industrial Average futures are up 195 points and are trading 0.5% above fair value.
- 2 year 4.394% versus 4.359% before the report
- 10 year yield 3.629% versus 3.616% before the report
Fed Funds
- For a June hike the expectations was 29% moved to 36%
- There is a 60% probability of a July hike
- The end-of-year Fed funds rate moved from 4.9% now 4.92%
The USD moved higher after the jobs report. US rates moved even higher than their pre release levels.
The report itself being good news for the economy is seen as mixed news for bond and stock markets, thinking it will hold any eventual pivot on rates by the Fed with its monetary policy. The big revisions down question the Fed raising unconditionally, given they are data dependent. The report says still higher for longer with respect to the target range for the fed funds rate, but there is a but.
Markets have been overridden by the shutdown of Regional Banks since SVB Financial and Signature banks and the havoc that has caused. The big downward revisions in April show an impact from the failure of Silicon Valley Bank and subsequent financial turmoil which didn’t show won’t likely show up in the preliminary March jobs data, which reflected hiring trends earlier in the month. Through the beginning of April, both loan demand and credit conditions deteriorated per Dallas Fed Banking Conditions Survey. Both have reversed lower and are near worst since pandemic erupted (note: both series limited and only back to 2017). via @LizAnnSonders·
“The great labor market machine is finally slowing down some, but it’s still got a lot of strength left,” said Robert Frick, corporate economist at Navy Federal Credit Union.
WSJ Fedwatcher Nick Timiraos on the jobs report:
Where the Jobs Were:
Largest gains (prior month) occurring in:
- Private education/health +97k (+85k)
- Prof/bus services +64k (+65k)
- Government +56k (+41k)
- Leisure/hospitality +48k (+30k)
- Trade/transport +37k (+17k)
- Construction +25k (+13k)
- Retail +12k (+10k)
- Temporary help +8k (-7K)
- Manufacturing -2k (+10k)
- Information -9k (+1k)
Largest losses occurring in:
- Manufacturing -2k (+10k)
- Information -9k (+1k)
Other Employment Reports
Household Survey Data
The unemployment rate increased by 0.3 percentage point to 3.7 percent in May, and the number of
unemployed persons rose by 440,000 to 6.1 million. The unemployment rate has ranged from 3.4
percent to 3.7 percent since March 2022.
Among the major worker groups, the unemployment rates for adult women (3.3 percent) and Blacks
(5.6 percent) rose in May. The jobless rates for adult men (3.5 percent), teenagers (10.3 percent), Whites
(3.3 percent), Asians (2.9 percent), and Hispanics (4.0 percent) showed little change over the month.
The number of job losers and persons who completed temporary jobs increased by 318,000 to 3.0
million in May, offsetting a decrease in the previous month.
In May, the number of persons jobless less than 5 weeks edged up by 217,000 to 2.1 million, partially
offsetting a decrease in the prior month. The number of persons jobless 15 to 26 weeks increased by
179,000 to 858,000 in May. The number of long-term unemployed (those jobless for 27 weeks or
more) was essentially unchanged at 1.2 million and accounted for 19.8 percent of the total unemployed.
The labor force participation rate held at 62.6 percent in May, and the employment-population ratio,
at 60.3 percent, was little changed.
The number of persons employed part time for economic reasons, at 3.7 million, changed little in
May. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs.
The number of persons not in the labor force who currently want a job was 5.5 million in May, little different from the prior month. These individuals were not counted as unemployed because they were not actively looking for work during the 4 weeks preceding the survey or were unavailable to take a job.
Among those not in the labor force who wanted a job, the number of persons marginally attached to
the labor force was little changed at 1.5 million in May. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months but had not looked for work in the 4
weeks preceding the survey. The number of discouraged workers, a subset of the marginally attached
who believed that no jobs were available for them, was little changed over the month at 422,000.
Establishment Survey Data
Total nonfarm payroll employment increased by 339,000 in May, in line with the average monthly
gain of 341,000 over the prior 12 months. In May, job gains occurred in professional and business
services, government, health care, construction, transportation and warehousing, and social assistance.
.
Private Jobs
- In May, professional and business services added 64,000 jobs, following an increase of similar size in April. Employment growth continued in professional, scientific, and technical services, which added 43,000 jobs in May.
- Health care added 52,000 jobs in May, similar to the average monthly gain of 50,000 over the prior 12 months. In May, job growth occurred in ambulatory health care services (+24,000), hospitals (+20,000), and nursing and residential care facilities (+9,000).
- Employment in leisure and hospitality continued to trend up in May (+48,000), largely in food services and drinking places (+33,000). Leisure and hospitality had added an average of 77,000 jobs per month over the prior 12 months. Employment in this industry remains below its February 2020 level by 349,000, or 2.1 percent.
- In May, construction added 25,000 jobs, including 11,000 jobs in heavy and civil engineering construction. Over the prior 12 months, construction had added an average of 17,000 jobs per month.
- Employment in transportation and warehousing increased by 24,000 in May. Transit and ground passenger transportation added 12,000 jobs, offsetting a decrease in the prior month. In May, employment also increased in couriers and messengers (+8,000) and air transportation (+3,000). Employment in transportation and warehousing has shown no clear trend in recent months.
- In May, employment in social assistance rose by 22,000, in line with the average monthly gain of 23,000 over the prior 12 months. Over the month, individual and family services added 17,000 jobs.
- Employment was little changed over the month in other major industries, including mining, quarrying, and oil and gas extraction; manufacturing; wholesale trade; retail trade; information; financial activities; and other services.
Government Jobs
Government employment increased by 56,000 in May, compared with the average monthly gain of
42,000 over the prior 12 months. Employment in government is below its pre-pandemic February 2020
level by 209,000, or 0.9 percent.
Manufacturing Jobs
US manufacturing payrolls decreased by 2,000 in May 2023, after a downwardly revised 10,000 gains in the previous month, while analysts were anticipating an increase of 6,000 jobs.
Earnings
In May, average hourly earnings for all employees on private nonfarm payrolls rose by 11 cents, or
0.3 percent, to $33.44. Over the past 12 months, average hourly earnings have increased by 4.3 percent.
In May, average hourly earnings of private-sector production and nonsupervisory employees rose by
13 cents, or 0.5 percent, to $28.75.
Wages Monthly
Wages Yearly
The average workweek for all employees on private nonfarm payrolls edged down by 0.1 hour to 34.3
hours in May. In manufacturing, the average workweek was unchanged at 40.1 hours, and overtime
edged up by 0.1 hour to 3.0 hours. The average workweek for production and nonsupervisory
employees on private nonfarm payrolls remained at 33.8 hours.
Hours
The change in total nonfarm payroll employment for March was revised up by 52,000, from
+165,000 to +217,000, and the change for April was revised up by 41,000, from +253,000 to
+294,000. With these revisions, employment in March and April combined is 93,000 higher than
previously reported. (Monthly revisions result from additional reports received from businesses and
government agencies since the last published estimates and from the recalculation of seasonal factors
The Employment Situation for June is scheduled to be released on Friday, July 7, 2023, at 8:30
a.m. (ET).
Source: AFP, Challenger, DOL, TradersCommunity Data, BLS
From The TradersCommunity News Desk