Last week the U.S. Bureau of Labor Statistics (BLS) published its employment data for the month of May. Economists who follow job growth in the U.S. were expecting the creation of 123,000 new jobs. The actual number according to the BLS was 38,000, which is the smallest gain since September of 2010.
That could be a troubling indicator that the economy is in worse shape than expected. However, we are not concerned about this single report and do not believe that there is cause for concern at this point for the following reasons.
First, a strike affecting 35,000 Verizon employees was somehow factored into the data. Unless all the striking workers are never coming back to work, a real count would have included the job-adding number and come in around 73,000.
Second, these are estimates with a margin of error of 100,000 jobs and one month of numbers is historically unreliable. We won’t actually know how many jobs were created until several months from now.
Third, despite the low job creation figure, the BLS also reported that the unemployment rate is dropping currently to 4.7 percent. This is the lowest rate since November of 2007. How can that be possible? BLS statistics state that people are leaving the workforce at a faster rate than in the past. However, the economy has also been adding 180,000 to 200,000 jobs almost every month for the past five years. Is it possible that there are jobs out there for the people who want them?
The BLS supports this by reporting that hourly earnings for workers were up 3.2 percent during the first five months of 2016, which suggests that workers have a bit more pricing power than they did last year. That also suggests that we are experiencing a tighter labor market where jobs are not falling off the table and people are no longer discouraged to apply for a job. Wage inflation has been almost nonexistent for the past eight years. This tighter labor market may be a good sign for our economy.
Finally, the uncertainty about jobs has somewhat delayed the rise in interest rates that has been widely expected from the Federal Reserve Board in June or July. You can expect the Fed to be more cautious about adding any costs to the economy until its economists can get a handle on what that odd job statistic means for the overall health of businesses in the U.S. That would give the economy a slight boost and might lead to higher job growth figures in the future.
Bottom Line: The May jobs report was very bad, but there were some mitigating circumstances. Markets did not move significantly on the news. We do not believe the jobs data is indicative of a recession, but we will continue to monitor employment data in coming months.