Job Growth in May Improves

Employment figures are disappointing against expectations, however

Roy Maurer By Roy Maurer June 4, 2021
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U.S. employers added 559,000 new jobs in May, more than double the total from April, but still disappointing expectations, according to the latest employment report from the Bureau of Labor Statistics (BLS). The unemployment rate fell to 5.8 percent from 6.1 percent in April.

The labor market has been showing some encouraging signs lately, from first-time jobless claims falling to 385,000 last week, to ADP reporting its private-sector payrolls rose by nearly one million in May. But while some jobs data indicate a rebound, the monthly BLS employment report has been a letdown—especially April's shockingly low 278,000 new jobs reported as economists were forecasting jobs figures topping 1 million each month through the remainder of 2021.

"It's hard to hate this report, but it's also hard to love it," said Nick Bunker, an economist at the Indeed Hiring Lab. "It's great to see a pickup to job growth, but it would have been better to see a larger acceleration. Adding a half million jobs in one month would be phenomenal news in a normal labor market, but we will need to keep up this tempo for quite some time to get back to a semblance of the pre-pandemic labor market."

Glassdoor Senior Economist Daniel Zhao agreed, noting that payrolls are now down 7.6 million below pre-pandemic levels, indicating that there's still a long way to go in the economic recovery.

"The jobs recovery is slower off the starting blocks compared to the burst of vaccine adoption and reopening economies this spring," he said. "However, there is still plenty of time for things to pick up momentum throughout the summer and into the end of the year. We could see a much-needed acceleration in the summer months, with pent-up demand bolstering consumer spending and in the fall with fully reopened schools alleviating childcare challenges facing parents."

The employment-to-population ratio ticked higher to 58 percent but remains short of its pre-pandemic level of 61.1 percent and the labor force participation rate fell to 61.6 percent, with more than 100 million workers remaining on the sidelines.

The drop in labor force participation is "a discouraging sign that workers aren't being pulled back into the labor force as quickly as hoped even as the economy reopens," Zhao said.

Employers continue to cite labor shortages as a critical factor in why roles are going unfilled. Economists point to enhanced unemployment benefits as a possible disincentive to job applicants, in addition to childcare concerns and continuing fears about the coronavirus behind the hesitancy of sidelined workers.

"The report will provide ammo to both sides of the political debate around labor shortages," Zhao said. "The slower-than-expected job gains and drop in labor force participation will be pointed to as evidence that the recovery is being held back by workers staying out of the labor force. Conversely, leisure and hospitality leading job gains despite widespread reports of shortages will be pointed to as an argument for why labor shortages are not significantly impeding job gains. For now, the rising leisure and hospitality earnings seem to be the strongest evidence that labor shortages are happening, but the report doesn't definitely signal what's the reason for these shortages."

Reopening Sectors Are Hiring

Services sectors continued to lead job creation in May. Leisure and hospitality employers added 292,000 positions, mostly in restaurants and bars.

"While labor shortages may make finding workers more difficult, they don't appear to be stopping jobs growth in the hard-hit sector," Zhao said.

Bunker added that any future pickup in job growth for the overall labor market is dependent on the hospitality sector generating a more robust rebound. Employment in this sector is still down by 2.5 million from its level in February 2020.

Employment also increased in public and private education in May, reflecting the continued resumption of in-person learning and other school-related activities in some parts of the country. Employment rose by 53,000 in local government education, by 50,000 in state government education, and by 41,000 in private education. However, employment is still down by over 1 million from February 2020 levels.

Other job gains came from professional and business services (35,000 jobs added), health care (23,000), manufacturing (23,000), transportation and warehousing (23,000), and wholesale trade (20,000).

The construction sector shed 20,000 positions and retail was down 6,000 overall, even though 11,000 jobs were added at clothing stores.

Unemployment Falls

The unemployment rate hit a new pandemic-era low as the number of people classified as unemployed fell by 496,000 to 9.3 million. That's considerably down from a recent high in April 2020 but well above levels prior to the COVID-19 pandemic in February 2020.

An alternative measure of unemployment that includes discouraged workers and those holding parttime jobs for economic reasons stood at 10.2 percent.

Pandemic-related unemployment fell sharply. The number of people who said their employer was closed because of the pandemic fell by 1.5 million and those on temporary layoff or furlough declined by 291,000 to 1.8 million in May. This measure is down significantly from 18 million in April 2020 but is over 1 million higher than in February 2020.

"Hopefully this is a sign these people [on furlough] got jobs, but that does mean that there are fewer easy wins on the hiring front moving forward," Bunker said.

The ranks of the long-term unemployed plunged by 431,000 to 3.8 million in May, said Diane Swonk, chief economist at Grant Thornton. But that is still 2.6 million higher than in February 2020. The long-term unemployed (those jobless for 27 weeks or more) accounted for 40 percent of the total unemployed in May.

"The stigma associated with losing a low wage job to the pandemic is not the same as that associated with other recessions," Swonk said. "Those who accepted part-time instead of full-time jobs edged up, underscoring the desire and need to work."

She added that women are starting to rejoin the labor force with schools and day care facilities reopening but a full comeback is not likely until schools fully reopen in August and September.

She also noted that teen employment is up "but off an extremely low base. This is where we need to make some real inroads on labor force participation, given the demographics of aging [and] automation also accelerating in the wake of the crisis."

Wages Jump

Average hourly earnings rose 2 percent year-over-year. Economists had largely attributed higher average hourly earnings during the pandemic to skewed compositional factors such as the majority of new hires in higher-earning positions. With the return of more hospitality workers, the numbers are gaining relevance.

"Wages jumped another 0.5 percent in May, after jumping 0.7 percent in April," Swonk said. "Those are the strongest back-to-back monthly gains since the onset of the crisis in 2020, when wages were artificially boosted by a loss in low wage jobs. A boost in pay by retail behemoths enhanced those gains."

Zhao pointed out that average hourly wages in the leisure and hospitality sector rose 1.3 percent month-over-month in May. "This continues a streak of increasing earnings from April and is a sign that reported labor shortages are actually turning into higher wages for leisure and hospitality workers."

Looking Ahead

Kevin Harrington, the CEO of job search site Joblist, said that it will be difficult to predict how the labor market will respond this summer after a few up-and-down months.  

"The summer is often a softer hiring season, but this could be counteracted in 2021 by a surge in activity that has been pent up over the last year," he said. "Hopefully, the rebound in May is an indicator of an accelerating recovery to come."

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