May 2022 Jobs Report
Job growth is moderating, and that's just fine
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U.S. payroll employment expanded by 390,000 in May. That’s the slowest month of job growth since April 2021, but it’s still a relatively strong jobs report and it beat consensus expectations by 65,000. This is also more jobs than we added during any single month from 2011-2019. We’re now just 822,000 jobs short of the pre-pandemic employment level and will conceivably reach full recovery this summer.
The unemployment rate stayed at 3.6% for a third consecutive month. We economists live in an upside-down world in which good news if often bad news and vice versa. Some economists were hoping that unemployment would rise, but it didn’t despite the fact that the labor force expanded by 330,000 people. The size of the U.S. labor force (those working or looking for work) is now just 207,000 people short of where it was before the pandemic tore the economy asunder. Complete labor market recovery will quite possibly be achieved this month.
As important as the headline employment growth and unemployment numbers are, the most important figure may be the labor force participation rate. The more people who rejoin the market, the less wage inflation we see. The labor force participation rate and employment-to-population ratio both inched 0.1 percentage points higher for the month, but remain 1.1 percentage points below pre-pandemic levels. We’ve observed especially rapid participation growth among women recently, and that is most welcome from the perspective of dulling the inflationary blade.
March’s estimated job growth was revised down to 398,000, so we’ve now fallen below the 400,000-new-jobs-a-month threshold twice in the past year (twice in the past three months). Job growth is slowing as employers continue to suffer difficulty filling positions with suitably qualified people while others are simply balking at elevated wage levels. Importantly, wage growth is starting to moderate. Average hourly earnings rose 0.3% for the month, which is less than the 0.4% consensus expectation. Average hourly earnings are up 5.2% over the past year, which represents a bit of a slowdown from earlier this year.
In short, this jobs report hints at precisely the dynamics the Fed wants to see—slowing job and wage growth and rising labor force participation. I say “hints” because wages and employment are still rising at an abnormally fast rate, and the labor force is growing, but not at a rate that will ease labor market tightness in dramatic fashion anytime soon. If you’re interested, there’s more on labor tightness (JOLTS data) in our Week in Review coming out later today. Week in Review is only for paid subscribers. If that’s not you, it can be! Simply click the button below.
Another point on inflation: as Zack likes to point out, a significant factor behind the burst of inflation experienced since early-2021 was the shift in consumption from services to goods. We couldn’t take a vacation, but we could buy a boat to entertain our family. We couldn’t go to restaurants, but we could buy a charcoal grill. We couldn’t hang out in person, but could hang out on fancy new devices.
But there are indications that consumption is shifting back toward services. Retail employment dipped 61,000 for the month. Those losses were concentrated at department stores, warehouse clubs, and other big box retailers.
Meanwhile, the previously beleaguered leisure and hospitality segment (think restaurants and hotels), added 84,000 jobs for the month. That transition from goods to services helps ease pressure from the supply chain, and that helps constrain inflation.
As always, you can read my in-depth thoughts regarding the construction industry’s labor market at Associated Builders and Contractors.
Three Key Takeaways
The number of men not in the labor force has risen by about 120,000 over the past year, while the number of women not in the labor force has fallen by about 1.2 million. There are still more women than men not participating in the labor force, and the relative change over the past year is likely a reflection of women who left the labor force to engage in caretaker responsibilities during the worst of the pandemic coming back. (By the way, men can be caretakers, too, but we just don’t do that as much as women).
The labor force participation rate remained unchanged for White people (61.9%) but increased for Black and African American people (63%), Asians (64.9%), and people of Hispanic or Latino ethnicity (66.5%). No subset of the population has a higher LFPR than men of Hispanic or Latino Ethnicity (80.1%). Isn’t that fascinating?
Labor force participation fell by 369,000 for people who never attended college. Labor force participation increased by 837,000 for those with some college or a college degree. This may be an indication that employers are getting choosier again, and that the desperation to hire is ebbing just a bit.
What to Watch
Consumer spending. Can’t have a recession if the consumer refuses to participate. There is already evidence that consumers from lower-income strata are beginning to pull back on spending. Will we see that creep up the income scale as inflation remains problematic and financial markets (down today) remain volatile?
Also, obviously, inflation, and we get new CPI data next week.
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