THE EMPLOYMENT RATE FALLS
No, that headline is not a typo.
To call today’s jobs release “highly anticipated” would be an understatement. The focus in the media was primarily on the Establishment survey’s headline nonfarm payroll number for the month of May. The range of estimates was incredibly large, from a maximum +750,000 to a minimum estimate of only +220,000 (based on a summary of 82 estimates on Bloomberg). The average of the sample was for job growth of +536,000. That the vast majority of this job creation would come from temporary Census hiring by the government was widely known. A smaller number of economists estimated the change in private sector payrolls, and the range of guesses here was wide as well, from a high of +257,000 down to a minimum of +30,000. The average private sector job growth estimate based on the 35 in the sample was +171,000.
As it turns out, the largest monthly job growth in a decade was read as a disappointment: “Only” 431,000 new jobs, of which 411,000 were temporary Census workers. Private sector job growth was fairly anemic, at +41,000 (net of ex-Census government job losses of -21,000).
The household survey contained the ostensible good news that the unemployment rate (number of unemployed divided by the number of workers in the civilian labor force) fell to 9.7% from 9.9% in the previous month. At the same time, the employment rate (number of employed divided by the civilian population) also fell, from 58.8% to 58.7%. How can this happen? As it turns out, the number of unemployed people fell by 287,000, but the number of employed people also fell, by 35,000. Obviously not all of those unemployed people found jobs, some of them simply left the labor force. Thus, the unemployment rate fell more than it otherwise would have because of the denominator effect of a falling labor force, reversing a 4-month trend of a rising participation rate (number of people in the civilian labor force divided by the civilian population). The civilian labor force fell by 322,000 in May.
Who are these people leaving the labor force? The Current Population Survey Labor Force Status Flows from the Bureau of Labor Statistics tracks the flows of workers into and out of these 3 categories:
· Employed
· Unemployed
· Not In The Labor Force
The chart that stood out the most to us is below.
The number of workers moving from the “unemployed” bucket to the “not in the labor force” bucket is at a new record during May, which tells us that potential workers are getting frustrated with their job search and giving up. Couple that with the fact that the duration of unemployment in the US has risen to a high of 34.4 weeks in May, and this is not a pretty picture.
