May Jobs Report: Job Growth Accelerating
223,000 Jobs Added in May.
May’s employment report showed strong job growth, declining unemployment, and improvement in wages. After adding a revised 159,000 jobs in April, the labor market posted a gain of 223,000 new jobs in May. This brings the average jobs added per month to 207,000 for 2018. The unemployment rate also fell unexpectedly from 3.9 percent to 3.8 percent – which ties with April 2000 as the lowest-level since 1969. Combined, the growth in employment and decline in unemployment, point towards an increasingly tight labor market. Annual wage growth, which has lagged somewhat in previous months, improved from 2.6 percent to 2.7 percent. This report should keep the Fed on track to increase rates at least two more times in 2018.
Top Takeaways from the Report
The labor market remains solid
Employers added a better-than-expected 223,000 jobs in May. The employment gains in March were revised up from 135,000 to 155,000, while job gains in April were revised down slightly from 164,000 to 159,000. Combined, these job revisions added a net positive of 15,000 jobs. Since the start of 2018, employers have added an average of 207,000 jobs per month, which is higher than the 172,000 jobs added on average during the same period in 2017.
The unemployment rate in May tied the lowest-level since 1969 of 3.8 percent. The underemployment rate, which measures those in part-time jobs seeking full-time work and those willing to work but not actively looking, dropped from 7.8 percent to 7.6 percent. Taken together, these two measures of unemployment indicate that the labor market is becoming increasingly tight and employers may have a difficult time finding qualified workers.
One reason for the decline in the unemployment rate was the fall in the labor force participation rate. The rate, which measures those individuals working or looking for work, dropped from 62.8 percent to 62.7 percent. This is somewhat surprising given the tightness in the labor market and the additional need of employers for qualified workers.
May’s strong employment report all but solidifies another quarter-point rate hike in June. The question becomes, will the Fed raise rates a total of three or four times this year? Given the strong streak of hiring and improving inflation numbers, the odds of four Fed rate hikes are increasing. The after-effects of the recently passed tax package have yet to fully be felt, but that stimulus could begin to be reflected in the economy in the second half of this year.
Continued Trade Spats
On Friday, the President announced the that the U.S. will impose tariffs on imported steel and aluminum from some of our largest trading partners – the EU, Canada, and Mexico. This announcement marks the latest turn in the ongoing trade negotiations and will likely bring swift retaliation and could jeopardize NAFTA renegotiations. It will be interesting to see what impact these trade spats will have on the broader economy in the coming months.
Growth by Select Industry
- The trade, transportation, and utilities sector added the most jobs in May, at 53,000. The majority of employment was seen in retail trade, which added 31,100 jobs.
- Employment in education and health services grew by 39,000 jobs over the last month. The majority of job creation came in the health care sector, which added 28,900 jobs.
- Manufacturing continued to grow, adding 18,000 jobs in May. The sector has added jobs for 10 consecutive months and shows no sign of slowing down.
- The Bottom Line – The U.S. labor market remains healthy and will likely continue to perform well over the coming months. May’s strong employment numbers combined with an uptick in inflation indicators, should keep the Fed on track to raise rates three, possibly four, times this year. The ongoing trade negotiations require monitoring as any significant retaliation could negatively affect economic growth going forward.
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