- The American jobs engine slowed more sharply than expected in May, churning out a modest 75k new jobs. The prior months’ gains were also revised down by 75k jobs. On the plus side, the unemployment rate remained near a 50-year low of 3.6%.
- The hiring slowdown was widespread. Private services sector hiring decelerated to 82k (from 170k in April), and the goods-producing sector gained a measly 8k new jobs (+35k in April). A loss of 15k jobs in the government sector dampened the headline tally.
- The BLS noted that hiring continues to trend up in professional and business services (+33k) and health care (+16k). Construction hiring was modest, +4k on the month, after a 30k spurt in April. Employment showed little changed in other major industries.
- The labor force participation rate remained steady at 62.8%, and other measures of labor market slack improved. The U6 unemployment rate, which includes people working part-time for economic reasons fell to 7.1%, from 7.3% in April. That is the lowest rate seen since 2000.
- Growth in average hourly earnings was up a modest 0.2% in May, matching the monthly gain in April. That left wage gains a tick softer at 3.1% on a year-on-year basis.
Key Implications
- Well, we have long expected hiring to slow in 2019, and now it has. Monthly hiring tallies have averaged 151k jobs over the past three months, down from a 223k pace in 2018 as a whole. There are simply fewer people available to fill job openings, pushing job growth to slow in line with trend growth in the labor force of around 120k per month. However, it is tough to argue against the reality that this slowing was more abrupt than expected. It may signal that the weakness we’ve seen in business confidence measures and in investment spending may now be showing up in hiring.
- This will be the tension that the Fed will need to navigate at its upcoming meeting June 19th. Do they put more weight on broad measures of labor market slack that point to a tight labor market, and view slower hiring as a natural part of a mature economic cycle? Or, do they see the hiring slowdown as the manifestation of weaker business confidence, where worries about the risks of slower global growth and tariff threats are increasing.
- For now, we think they will tend toward the former, and wait for further confirmation that the slowdown in hiring reflects something more insidious. Much depends on what happens on the tariff front, and whether a better outcome with Mexico and China can remove the main cloud hanging over the outlook.
