Wow. The noise you just heard was the jobs market hitting the wall. The Bureau of Labor Statistics (BLS) May 2011 private non-farm payrolls came in at 83,000. This is terrible but over double ADP’s May 2011 report of 38,000 (analysis here).
Repeating from our ADP employment data analysis:
But there has been a lot of warning that employment would be lower based on the recent rise in the initial unemployment claims we have been seeing over the last 2 months.
The red line in the above graph is the historical jobs creation pressures from the economy. May is in a contraction period. The actual (blue line) has been running well above our calculated growth line (red line). Maybe this month was a catchup month?
Or there could be other factors – such as inflation which is deadly to an economy which is not growing fast. Another possibility is the economy is weaker than Econintersect has forecast. Over the coming months, an answer will be more obvious as one month’s data is not a trend.
The difference between the headline numbers are government payrolls which Econintersect excludes. The Federal Government added 1,000 workers in May, while state governments declined 2,000 and local governments declined 28,000. The headlines from the BLS :
Nonfarm payroll employment changed little (+54,000) in May, and the unemployment rate was essentially unchanged at 9.1 percent, the U.S. Bureau of Labor Statistics reported today. Job gains continued in professional and business services, health care, and mining. Employment levels in other major private-sector industries were little changed, and local government employment continued to decline.
Looking below the headlines:
- In the latest BLS report employment-population ratio remained at 58.4% (where it has been mostly this year) – and the labor force participation rate remains constant at 64.2%). These ratios tell you that the percent of the population or workforce unemployed did not change.
- Econintersect does not like the BLS methodology of determining unemployment – only participation rates or employment-populations ratios tell you what is really going on with unemployment. But for those who like to read this the headline U-3 unemployment rate rose from 9.0% to 9.1%. The all in U-6 unemployment rate fell from 15.9% to 15.8%. The historical employment/population ratio is shown in the graph from Doug Short:
- Average hours worked remain unchanged at an April upwardly revised 34.4 – a rising number indicates an expanding economy.
- Local government employment fell by 28,000. While some of these jobs could have reappeared in private sector employment as outsourcing, loss of state and local government jobs remains a headwind to economic growth.
- The big contributors to employment growth this month are professional and business services (44,000 versus 51,000 last month) and education and health (34,000 versus 49,000 last month).
- Economic markers used by Econintersect to benchmark economic growth were mediocre. The transport sector employment is up 2.3% annualized this month. The support services industry (including temporary help) fell 0.3% annualized. Econintersect believes the transport sector is a forward indicator implying the future is flat jobs growth. Others look at temporary help as a forward indicator.
- Manufacturing fell 5,000 against a gain of 29,000 in April.
- The unemployment rate for people between 20 and 24 fell from 14.9% to 14.7%. Econintersect posted an analysis on university graduate unemployment which is worth a read (analysis here).
- Average hourly earnings up-ticked slightly from $19.37 to $19.43.
The National Federation of Independent Business (NFIB) Chief Economist William Dunkelberg commented on the employment situation:
“After solid job gains early in the year, progress has slowed to a trickle. The two NFIB indicators—job openings and hiring plans—that predict the unemployment rate both fell, suggesting that the rate itself will rise.
“May’s job numbers will disappoint; meaningful job creation on Main Street has collapsed.
“Twelve percent (seasonally adjusted) of small-business owners reported unfilled job openings (down 2 points). Further indications of minimal future growth include the fact that in the next three months, 13 percent plan to increase employment (down 3 points), and 8 percent plan to reduce their workforce (up 2 points). That yields a seasonally adjusted net negative 1 percent of owners planning to create new jobs, a 3 point loss from April.
“Overall, reports of job reductions have returned to historically normal levels. However, the percent of owners hiring has not recovered to levels historically observed after two years of expansion. With one in four owners still reporting ‘weak sales’ as their No. 1 business problem, there is little need to add employees, especially with the uncertainty about future labor costs arising from new regulation and legislation. And, if Congress doesn’t deal effectively with the trillion dollar deficit, we’ve got plenty to keep us worried.”
Keeping things in perspective, this bump in the road was forecast by our economic model. However, our model excludes the effects of inflation – which we believe is effecting the jobs picture. Our model (ignoring inflation) does predict a resumption of more solid jobs growth in 3 or 4 months.
ADP Employment Growth Crashes: Our Assessment by Steven Hansen
Is the Stimulus Effecting Unemployment Claims? by Steven Hansen
JOLTS: The Labor Market Is Far From Normal by Steven Hansen
BLS: Jobs Up Strongly in April 2011 by Steven Hansen
College Training for Unemployment by Mike Konczal
Economic Damage Storm Track of The Great Recession by Ted Kavadas