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 Lead Economist Daniel Zhao
The job market continues to enjoy summer temperatures with another month of hot-but-not-too-hot growth. Payrolls expanded by 339,000, beating expectations, while the unemployment rate rose from historic lows to 3.7 percent. Both figures beat expectations giving some mixed signals on the economy. Despite the mixed signals, the final point is ultimately the same: the May jobs report is solid and continues to show a firm labor market.
Payroll Employment Growth Jumps
Employers added 339,000 jobs to payrolls in May, up from the 294,000 jobs added in April. So far in 2023, payrolls have grown by an average of 314,000 on a monthly basis. By contrast, in Q4 2022, average monthly payroll gains were 284,000. The oft-predicted slowdown in the labor market has been slow to arrive.
Job gains were led by health care & social assistance (+74,600 jobs added) and professional & business services (+64,000). Despite the surge in interest rates over the past year, traditionally rate-sensitive sectors like construction remain resilient, adding 25,000 jobs in May.
Unemployment Rate Jumps Too
The unemployment rate increased to 3.7 percent in May, rising from historically low levels of 3.4 percent in April. The Black unemployment rate jumped from a record low 4.7 percent in April to 5.6 percent in May, a surprisingly large jump.
The share of unemployed coming from permanent layoffs also rose modestly to 26 percent from 25.5 percent. This figure has been elevated over the last three months in a sign that “white collar” layoffs in 2023 may be modestly boosting unemployment.
While the headline unemployment figures in the household survey came in weaker than expected and weaker than the establishment survey, there were some bright spots.
While labor force participation (flat at 62.6 percent) is still below the pre-pandemic level of 63.3 percent, this discrepancy is largely due to the aging population. When looking at just workers aged 25 to 54, the prime-age labor force participation rate rose to 83.4 percent, up from 83.3 percent in April and now at the highest level since January 2007.
Wage Growth Ticks Down
Year-over-year growth in average hourly earnings decelerated to 4.3 percent in May, down from 4.4 percent. While wage growth has slowed from its 2022 peaks, the Federal Reserve likely sees the need for more deceleration to achieve their goals of lower inflation. Today’s report with strong job gains and above-target wage growth likely encourages the Fed to keep future hikes as an option in their back pocket.
Conclusion
May’s report offers some mixed signals. On the positive side, strong jobs growth married with rising prime-age labor force participation and cooling wage growth gives assurance that the labor market is cooling gracefully. However, a jump in unemployment, especially for Black workers, and in permanent layoffs suggests that the labor market is feeling the pinch from layoffs this year. Overall, the report still signals a hot-but-not-too-hot job market, where growth is continuing but that economic headwinds remain a real risk.
More Insights
Payrolls grew by 339,000 in May, solidly beating expectations (again). Job gains so far in 2023 have averaged 314,000, up modestly from 284,000 in Q4 2022. The labor market's oft-predicted slowdown has been slow to arrive.
The jump in jobs growth was in large part driven by the service sectors: Health care & social assistance (+74,600) and professional & business services (+64,000). Also notable: Construction added 25k jobs despite interest rate increases.
Average hourly earnings growth ticked down ever so slightly, falling to 4.3 percent year-over-year from 4.4 percent in April. Another sign of a firmer labor market, slowing slowly.
The unemployment rate jumped to 3.7 percent in May, up from 3.4 percent in April.
Permanent layoffs were a large contributor to the jump in unemployment. The number of unemployed rose by 318,000 and permanent layoffs rose by 143,000, boosting the permanent layoff share of unemployed to 26 percent.
The Black unemployment rate spiked to 5.6 percent in May from its historic low in April of 4.7 percent. Month-to-month changes in unemployment by race/ethnicity are volatile, but it would be extremely disappointing if the previous 2 months' progress on the racial unemployment gap was a mirage.
Prime-age labor force participation hit 83.4 percent in May, the highest level since January 2007. Concerns about declining labor force participation are mostly about the aging population, not about Americans "not wanting to work".
Average weekly hours hit their lowest intra-recovery level in May, falling to 34.3 hours, suggesting employers are avoiding layoffs but cutting back on hours for the workers they do have.
