The U.S. economy added back another more than half a million jobs in May, with employment accelerating from April but still missing estimates even as the jobless rate slid to a new pandemic-era low.
The U.S. Labor Department released its May jobs report Friday morning at 8:30 a.m. ET. Here were the main metrics from the report, compared to consensus estimates compiled by Bloomberg:
Change in non-farm payrolls: +559,000vs.+675,000 expected and a revised +278,000 in April
Unemployment rate: 5.8% vs. 5.9% expected and 6.1% in April
Average hourly earnings, month-over-month: 0.5%vs. 0.2% expected and 0.7% in April
Average hourly earnings, year-over-year: 2.0%vs.1.6% expected and a revised 0.4% in April
Friday's report also came with revisions to the prior two month's payroll gains. April's payrolls were upwardly revised by 12,000 to 278,000, while March's non-farm payrolls increase was raised to 785,000 from 770,000. Altogether, the U.S. economy is still about 7.6 million jobs short of its pre-pandemic levels from February 2020, and would require more than a year to recoup this deficit at the current pace of job gains.
"Today's jobs report shows historic progress for American families and the American economy. We added 559,000 jobs in May, created a record two million jobs in our first four months, and unemployment is at its lowest level since the pandemic started," President Joe Biden wrote in a Twitter post Friday morning. "America is on the move again."
Some of the industries within the service sector that had been most deeply impacted by the pandemic saw another surge in re-employment during the month. The leisure and hospitality industry added back 292,000 jobs in May on top of 328,000 in April, but is still about 2.7 million jobs short of pre-pandemic levels. Education and health services brought back 87,000 jobs, or more than three times the April gain. Professional and business services, transportation and warehousing, and temporary help services industries swung back to job gains in May after shedding payrolls on net during the prior month.
Jobs in the goods producing sector were up just slightly in May after falling by 36,000 in April. Construction industries shed jobs for a back-to-back month and at an accelerating rate, while manufacturing payrolls swung back to a gain of 23,000 jobs following a loss of 32,000 in April.
While overall payroll gains in May came up short compared to consensus estimates, the miss was narrower than the one seen in April, when just over a quarter-million jobs were added back versus the 1 million expected. On the whole, consensus economists were looking for a stronger print on the labor market for May, given that an additional wave of vaccinations, business reopenings and eased mask mandates have taken place in the past month.
The May increase in non-farm payrolls represented the largest since March and a fifth straight monthly gain. And at 5.8%, the unemployment rate for May also marked the lowest level since March 2020, reversing course after unexpectedly rising in April. However, that drop in the jobless rate also came alongside an unexpected drop in the labor force participation rate to 61.6% from the 61.7% in May, suggesting a smaller share of Americans out of work returned to the labor force to look for or take new jobs.
"We expect that in the coming months there will be a significant rise in the labor force participation rate because several factors point in that direction," UBS economist Pablo Villanueva said in a note ahead of the May jobs report. "Schools are reopening, COVID risks are diminishing, and in many states unemployment benefits are coming down."
"It is difficult to identify the impact of each of these policies on supply but they all point towards more people joining the labor force," he added. "All in all, our view on the labor market is one of underlying strength during the coming months but with abnormally high levels of noise."
As consumer mobility picks up, companies have been struggling with labor supply shortages to meet demand. A paucity of qualified workers to fill positions has weighed on both manufacturing and services sector activity, according to Institute for Supply Management reports out earlier this week. The Federal Reserve's Beige Book, or collection of anecdotes tracking economic conditions across the major Fed districts, also highlighted this strain.
"It remained difficult for many firms to hire new workers, especially low-wage hourly workers, truck drivers, and skilled tradespeople," according to the Beige Book on Wednesday. "Contacts expected that labor demand will remain strong, but supply constrained, in the months ahead."
The May jobs report were not only set to signal the strength in rehiring, but also suggest whether the economy has rebounded to an extent that might warrant a shift in monetary policy by the Federal Reserve. Some central bank officials suggested recently it may be time to "think about thinking about" tapering of the Fed's $120 billion in asset purchases each month, though the back-to-back disappointments in payroll gains in April and May may serve as justification to remain on hold.
"What I see here is somewhat of a 'Goldilocks' overall economy. I see that employment is increasing," former Chase Chief Economist Anthony Chan told Yahoo Finance. "I'm a little bit disappointed that we didn't see a bigger jump in leisure and hospitality, which may explain why that average hourly earnings number came in just a little hotter, because remember those are lower cost types of jobs."
"With regard to the reason why the market is excited, it's because that it's telling us that the economy is not blistering hot, that it's actually going to be opening up pretty gradually," he added. "I think that's important."
