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Friday, June 3, 2016

Nonfarm Payrolls Up Only 38K In May, Unemployment Drops To 4.7%

The assessment of the labor market, not to mention the outlook for consumer spending, just came down as nonfarm payrolls proved much weaker than expected in May, up only 38,000 with the two prior months revised a total of 59,000 lower. The Verizon strike is a negative in the data but not a decisive one, pulling down telecommunication payrolls by 37,000 in a loss that will be reversed in coming reports now that the strike has been resolved.

The labor force as measured by the household survey shrank sharply, in turn driving down the unemployment rate by 3 tenths to a 4.7 percent level that embodies monthly weakness, not strength, in the labor market. The labor force participation rate, after having shown life in prior months, is down 2 tenths to 62.6 percent.

Earnings data are soft with average hourly earnings up only 0.2 percent with the year-on-year rate unchanged at a less-than-inflationary 2.5 percent. The average workweek is at 34.4 hours with the prior month revised 1 tenth lower to 34.4 as well.

Payrolls by industry show wide declines apart from telecommunications. Construction spending has been strong but construction payrolls, at minus 15,000, are down for a second month. Manufacturing payrolls, which have been consistently weak, are weak again, down 10,000 in the month. And mining payrolls extended their long contraction, also down 10,000 in the month. Of special note, temporary workers fell 21,000 but in a reading that could have been affected by the Verizon strike. On the positive side are government payrolls, up 13,000 in the month, and retail trade, up 11,000.

But positives are very hard to find in this report. Throw out any chance of a rate hike at this month's FOMC and look for Janet Yellen, in her appearance on Monday, to offer an explanation for the sudden downgrade to the economic outlook.


Recent History Of This Indicator:
Nonfarm payrolls slowed to 160,000 in April and no rebound is expected for May where the consensus is at 158,000. Yet the unemployment rate is expected to dip 1 tenth and move back below 5.0 percent at 4.9 percent. This report had been very strong before April as newcomers entered the labor force, but business investment and business confidence have been moving lower and pointing to less need for hiring. Average hourly earnings showed traction in April, up 0.3 percent for a 2.5 percent year-on-year rate, but here forecasters do not see further pressure, at a consensus 0.2 percent monthly gain. If results come in near the consensus, talk may still hold for a July FOMC rate hike but perhaps not for a June hike. Note that the Verizon strike of 35,100 workers has since been resolved but, because of the possible hiring of temporary workers, still may be a wildcard for this report.

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