May Jobs Report: Better, But Still Not Booming

June 4, 2021

The latest jobs numbers are out from the U.S. Bureau of Labor Statistics. What do they mean for job seekers, employers and investors? Here’s a quick take from Glassdoor Senior Economist Daniel Zhao.

Today’s jobs report shows the recovery rebounding after April’s surprise slowdown. The labor market added 559,000 jobs in May, slightly below expectations and up from the 278,000 jobs added in April. While the rebound doesn’t send job gains over 1 million, it is a signal that the April slowdown was more of a blip than the start of a slowdown. The recovery has yet to show signs it’s ready to charge forward with a full head of steam, but is still lightly tapping the accelerator.

Payroll Growth Rebounds

Payroll employment added 559,000 jobs, slightly below expectations. Jobs added in April were revised upward slightly to 278,000 jobs added from 266,000, dashing hopes of a large upward revision to the disappointing April job gains. Payrolls are now down 7.6 million below pre-crisis levels, indicating that there’s still a long way to go in the economic recovery.

Reopening Industries Make Gains

Leisure & hospitality gained 292,000 jobs despite widespread reports of labor shortages. While shortages may make finding workers more difficult, they don’t appear to be stopping jobs growth in the hard-hit sector. Educational services (+40,700 jobs added) and state & local government education (+103,000) added jobs as schools continued to reopen even as the end of the school year nears.

Average Hourly Earnings Rise for Leisure & Hospitality

Average hourly earnings in leisure & hospitality rose 1.3 percent month-over-month in May. This continues a streak of increasing earnings from April and is a sign that reported labor shortages are actually turning into higher wages for leisure & hospitality workers. One important question is how persistent these wage gains will be. Wage gains could decelerate once the economy more fully reopens and workers return to the labor force. Conversely, wage gains at the expense of job gains are not a recipe for an equitable recovery.

Unemployment Falls to 5.8 Percent

The unemployment rate fell to 5.8 percent in May, down from 6.1 percent in April. The drop was driven almost entirely from a decline in unemployment and near-equivalent increase in employment. However, labor force participation dropped modestly to 61.7 percent, a discouraging sign that workers aren’t being pulled back into the labor force as quickly as hoped even as the economy reopens. Temporary layoffs declined to 1.8 million and permanent job losers fell to 3.2 million in a more encouraging sign that the permanently unemployed are finding new jobs.

What About Labor Shortages?

The report doesn’t end the debate around labor shortages, but instead will provide ammo to both sides of the political debate. The slower-than-expected job gains and drop in labor force participation will be pointed to as evidence that the recovery is being held back by workers staying out of the labor force. Conversely, leisure & hospitality leading job gains despite widespread reports of shortages will be pointed to as an argument for why labor shortages are not significantly impeding job gains. For now, the rising leisure & hospitality earnings seem to be the strongest evidence that labor shortages are happening, but the report doesn’t definitely signal what’s the reason for these shortages.

Looking Ahead

The jobs recovery is slower off of the starting blocks compared to the burst of vaccine adoption and reopening economies this spring. However, there is still plenty of time for things to pick up momentum throughout the summer and into the end of the year. We could see a much-needed acceleration in the summer months, with pent-up demand bolstering consumer spending and in the fall with fully reopened schools alleviating childcare challenges facing parents.

More Insights

Payrolls rose by 559,000 jobs in May, reaccelerating from the disappointing 278,000 jobs added in April. Unfortunately, April was revised up from only +266K, a pretty minor revision.

Job gains were largest in leisure & hospitality (+292,000). Together, educational services and state & local government education also added 144,000. These reopening service industries drove the largest job gains in May. Construction saw the largest job losses (-20,000), primarily driven by nonresidential specialty trade contractors (-16,800).

It’s especially important to see jobs growth in the recovery for leisure & hospitality and education because they remain two of the worst impacted industries with the largest gaps relative to pre-crisis levels of employment.

The below chart is another view that shows (1) how deep the hole is that leisure & hospitality is trying to climb out of and (2) how persistent job losses have been in government (much of them driven by education).

Average hourly earnings jumped up to 2.0 percent, but remember that the oscillations here are due to a combination of composition and base effects. In other words, don’t panic about average hourly earnings growth coming in at only 2.0 percent.

Average hourly earnings for production & nonsupervisory workers in leisure & hospitality are rising rapidly, continuing to accelerate into May in the clearest evidence of ongoing labor shortages and employers offering higher pay to attract workers

The unemployment rate fell to 5.8 percent, in line with expectations, but this was also married with a small drop in labor force participation—a blemish on an otherwise healthy drop in the unemployment rate.

Both temporary and permanent layoffs fell. Permanent layoffs have been stubbornly stuck for several months, so seeing job gains coming from that pool is good, especially as they’re often the last to return in a recovery.

The unemployment rate fell across racial and ethnic groups as employment improved for Black, Hispanic/Latino & Asian workers in May. However, the unemployment rates are higher for certain groups. Black workers continue to face higher unemployment rates, even as businesses worry about worker shortages.

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