Bank of the West Instant Analysis of May’s Employment Report

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  • by BPC Staff
  • June 3, 2016
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Instant Analysis of Today’s Employment Report for May

Job growth goes on strike in May.  Nonfarm payrolls increased a modest +38k in May far below economist consensus expectations for +162K.  This was the lowest monthly gain in jobs in six years and the 3-mo. average of monthly gains fell to +116K. There was also a net downward revision of past payroll gains of -59K.

Construction jobs dropped -15K, information dropped -34K largely due to the Verizon strike, and durable goods manufacturing -18K, and mining also lost -10k jobs.  Private services added +61K largely due to Health Care payrolls which increased by +46K.

The unemployment rate dropped to 4.7% from 5.0% the lowest level since November 2007, but that was due to a drop in the labor force and not really good news.  The U.S. labor force contracted by 458K in May, and the labor force participation slipped two-tenths to 62.6%.

On a brighter-note, average hourly earnings increased +0.2% last month and is 2.5% higher than a year ago.

Bottom-line, job growth has visibly weakened over the last two months and will give the FOMC some pause as they consider another rate hike over the next few meetings.  We believe the headline number implies a worse labor market than actually exists.  The Verizon strike artificially pushed the number down by at least 34K.  Still the job growth trend has certainly turned down as cyclical sectors such as manufacturing and mining continue to bleed jobs and private service sector job growth fades.  The Fed will remain in wait and see mode on weaker U.S. job growth and Brexit risk in June.  We are pushing out our forecast for the next rate hike from the Fed to September FOMC meeting from July.  The Fed will likely need to see a convincing rebound in job growth in the next few months to give the green light to move again.

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