Initial Reaction
Today's employment report shows an increase of 38,000 jobs, well under the Bloomberg Econoday consensus estimate of 158,000 jobs and below the entire consensus range of 110,000 to 219,000.
The change in total nonfarm payroll employment for March was revised from +208,000 to +186,000, and the change for April was revised from +160,000 to +123,000. With these revisions, employment gains in March and April combined were 59,000 less than previously reported. Over the past 3 months, job gains have averaged 116,000 per month.
The household survey was worse. Employment rose a mere 26,000. That is on top of a decline last month of 316,000.
Adding insult to injury, part-time employment for economic reasons soared by 468,000.
The unemployment rate declined to 4.7% because a whopping 458,000 people dropped out of the labor force.
Rate Hike Not
Let's dive into the details in the BLS Employment Situation Summary, unofficially called the Jobs Report.
BLS Jobs Statistics at a Glance
- Nonfarm Payroll: +36,000 - Establishment Survey
- Employment: +26,000 - Household Survey
- Unemployment: -484,000 - Household Survey
- Involuntary Part-Time Work: +468,000 - Household Survey
- Voluntary Part-Time Work: +137,000 - Household Survey
- Baseline Unemployment Rate: -0.3 to 4.7% - Household Survey
- U-6 unemployment: +0.0 to 9.7% - Household Survey
- Civilian Non-institutional Population: +205,000
- Civilian Labor Force: -458,000 - Household Survey
- Not in Labor Force: +664,000 - Household Survey
- Participation Rate: -0.2 at 62.6 - Household Survey
Employment Report
Please consider the Bureau of Labor Statistics (BLS) Current Employment Report.
The unemployment rate declined by 0.3 percentage point to 4.7 percent in May, and nonfarm payroll employment changed little (+38,000), the U.S. Bureau of Labor Statistics reported today. Employment increased in health care. Mining continued to lose jobs, and employment in information decreased due to a strike.
Unemployment Rate - Seasonally Adjusted
Nonfarm Employment Change from Previous Month
Nonfarm Employment Change from Previous Month by Job Type
Hours and Wages
Average weekly hours of all private employees was flat at 34.4 hours. Average weekly hours of all private service-providing employees was flat at 33.3 hours. Average weekly hours of manufacturers rose 0.1 to 40.8 hours.
Average hourly earnings of private workers rose $0.03 to $21.49. Average hourly earnings of private service-providing employees rose $0.01 to $21.27.
For discussion of income distribution, please see What's "Really" Behind Gross Inequalities In Income Distribution?
Birth Death Model
Starting January 2014, I dropped the Birth/Death Model charts from this report. For those who follow the numbers, I retain this caution: Do not subtract the reported Birth-Death number from the reported headline number. That approach is statistically invalid. Should anything interesting arise in the Birth/Death numbers, I will add the charts back.
Table 15 BLS Alternate Measures of Unemployment
Table A-15 is where one can find a better approximation of what the unemployment rate really is.
Notice I said "better" approximation not to be confused with "good" approximation.
The official unemployment rate is 4.7%. However, if you start counting all the people who want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.
U-6 is much higher at 9.7%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.
Some of those dropping out of the labor force retired because they wanted to retire. The rest is disability fraud, forced retirement, discouraged workers, and kids moving back home because they cannot find a job.
Strength is Relative
It's important to put the jobs numbers into proper perspective.
- In the household survey, if you work as little as 1 hour a week, even selling trinkets on EBay, you are considered employed.
- In the household survey, if you work three part-time jobs, 12 hours each, the BLS considers you a full-time employee.
- In the payroll survey, three part-time jobs count as three jobs. The BLS attempts to factor this in, but they do not weed out duplicate Social Security numbers. The potential for double-counting jobs in the payroll survey is large.
Household Survey vs. Payroll Survey
The payroll survey (sometimes called the establishment survey) is the headline jobs number, generally released the first Friday of every month. It is based on employer reporting.
The household survey is a phone survey conducted by the BLS. It measures unemployment and many other factors.
If you work one hour, you are employed. If you don't have a job and fail to look for one, you are not considered unemployed, rather, you drop out of the labor force.
Looking for jobs on Monster does not count as "looking for a job". You need an actual interview or send out a resume.
These distortions artificially lower the unemployment rate, artificially boost full-time employment, and artificially increase the payroll jobs report every month.
Final Thoughts
Last month I offered these final thoughts: "This report was much weaker than the headline number indicates. +160,000 jobs vs. -316,000 employed is quite the discrepancy. In the past, household survey weakness tended to be made up in subsequent months. One of these times, out of the blue, we will see sustained weakness."
Today was "one of these times". The household survey was bad two months in a row, the establishment survey was exceptionally weak, and there were significant downward revisions in prior establishment reports.
The Fed isn't hiking in June.
