Payroll jobs rose by 559,000 in May – much better than April (which has been revised up to 278,000) but still much slower than March (revised to 785,000). The payroll growth was less than the roughly 650,000 expected by economists, even after acknowledging that hiring would be somewhat sluggish.
Growth in payroll employment was quite uneven across sectors. Leisure/hospitality employment rose by 292,000, but remains about 2.5 M below February 2020; and retail employment was flat. Similarly, manufacturing employment rose by 23,000 but construction was down.
On the household side, the unemployment rate declined from 6.1% to 5.8%. But labor force participation also declined a bit; it rose for women by .1 percent but declined for men by .2%. Child care or other issues seem to still keep some women from returning to work.
The number of workers permanently laid off from their jobs remained high at 3.2M, and the number of long-term unemployed remained high at 3.75M. Bringing all of these workers back into employment will likely take some time.
Perhaps the most important number in the jobs report was another notable increase in hourly wages: they rose by 6% on an annual basis, after also rising by 8% last month.
The combination of sluggish employment growth but rising wages tell a clear story: anecdotes about employers having difficulty hiring are true, and they are raising worker wages to attract or retain more of them. So labor demand (jobs) is rising faster than labor supply (workers).
What is holding workers back? The evidence here is less clear, but it is likely a range of factors: the $300 weekly bump-up in Unemployment Insurance payment likely plays a small role; it should matter most in leisure/hospitality where job growth was strongest, though perhaps slower than employers wanted. Recent news stories of workers refusing to go back to their old restaurant jobs suggests that workers there are tired of low wages, unstable hours and possible exposure to Covid.
The slow recovery of labor force participation of women likely reflects child care needs to a small extent, and perhaps other care needs at home. The continuing high numbers of long-term unemployed and permanent layoffs might well reflect a need for new skills as jobs disappear in some occupations/industries (like retail sales) and rise in others (like transportation/logistics).
These numbers and interpretations also have a few major implications for policy. The labor market doesn’t need more stimulus overall, except perhaps in some depressed regions (or for workers with employment barriers), where subsidized employment might make sense. Providing skills training for the long-term unemployed and permanently laid off, as well as those refusing to return to previous low-wage jobs, could be important – and especially if a new infrastructure bill raises the demand for construction workers. Helping workers find and prepare for jobs in new occupations and industries could be important.
Overall: the labor market continues to recover, but the recovery will not occur as quickly as some economists expected a few months ago, and policy assistance will be needed to get more workers back.
