Unemployment Rate Falls Again, over 200K New Jobs Added

 

June 1, 2018
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U.S. employers blew past economists' forecasts by adding 223,000 new jobs in May, and bringing the unemployment rate down to 3.8 percent, the lowest since April 2000, according to the latest employment report from the U.S. Bureau of Labor Statistics.

Wage growth rose slightly year-over-year to 2.7 percent.

Through the first five months of the year, employers have added an average of 207,000 workers to their payrolls each month, outpacing 2017's average monthly growth of 182,000 and running counter to the general expectation for hiring to slow down as the labor market tightens.

"This [economic] recovery is showing no sign of slowing down," said Martha Gimbel, research director for Indeed's Hiring Lab, the labor market research arm of the global jobs search engine. "With strong job numbers, a drop in the unemployment rate, and the long-term unemployment rate finally reaching its pre-recession low, the labor market is continuing its longest streak of job growth on record."

That record now sits at 92 consecutive months. "Despite a few weather-related stumbles over the past year, hiring and job growth remain remarkably strong," said Andrew Chamberlain, chief economist at Glassdoor. "With a record 6.6 million open jobs and a nearly 20-year low unemployment rate, these are good times for job seekers, and that's likely to translate into rising wage gains throughout this summer." 

The top industries adding jobs in May were retail (31,100 jobs), health care (28,900 jobs) and construction (25,000 jobs). 

"The late-breaking spring thaw may have contributed to retail's strong month for payroll growth," said Josh Wright, chief economist for recruitment software firm iCIMs, referring to retailers waiting for more temperate weather before hiring seasonal workers for spring. Job gains in apparel, building materials and garden supply and department stores led the rise.

Manufacturing employment continued to expand over the month (18,000 jobs added) as did mining (5,500 jobs added), which continues to recover from a low reached in October 2016. Industries that experienced job losses were temporary help services (7,800), motor vehicles and parts (4,400), and utilities (1,100).

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Overall Unemployment Drops

Unemployment is at its lowest level in 18 years. The only rise in unemployment demographics was among people who left jobs, Wright noted. The unemployment numbers also indicate lingering slack in the labor market and that full employment has not yet been reached, he added. "Unemployment rates declined most sharply for blacks and Asians and for those with only a high school degree," he said.

The number of long-term unemployed (those jobless for 27 weeks or more) fell from 1.3 million to 1.2 million in May and accounted for 19.4 percent of the unemployed. Over the past 12 months, the number of long-term unemployed has declined by 476,000.

While the unemployment rate continues to fall, other indicators are more problematic.

"Both the prime-age employment-population ratio and the rate of workers working part-time for economic reasons have continued to hold around their level of the last few months," Gimbel said. "The fact that the rate of workers who are working part-time for economic reasons remains elevated shows that the demand from workers for full-time work has not yet been met." 

Cathy Barrera, the chief economist for ZipRecruiter, noted that while the number of people unemployed for more than 15 weeks is declining (from 2.8 to 2.2 million over the last year), the numbers for those unemployed less than 15 weeks have not really changed.

"This tells us that the snapshot of the labor market is nuanced, and cannot necessarily be summed up in a single unemployment statistic," she said. "While there is a good deal of competition for talent, there continue to be mismatches on the ground, where some employers are having a hard time filling roles and some job seekers are having a hard time finding good jobs near them."

Still Waiting on the Wage Bump

A tighter labor market should produce wage growth, but the expected increase has been lagging. Barrera noted that wages have begun to climb in 2018, but less than 3 percent is disappointing compared with the 5 percent growth the last time the unemployment rate was similarly situated.

"What we're seeing is that people with high school educations or less are rebounding faster than folks with college degrees, which may tell us something about the quality of jobs added," she said. "It would seem that the jobs being created are appropriate for those at entry level, which is good news because this is a group that had been left behind in the early stages of the recovery. The one small downside is that since they are entry-level jobs, which tend to pay less, wage growth is slower than we would like. We're getting people into the labor market, and now we need to improve movement within the labor market to get upward pressure on wages."

The net share of small businesses that said that they raised compensation in May climbed 2 percentage points to 35 percent, the highest monthly rate since 1986, according to a National Federation of Independent Business survey. Construction, financial services, manufacturing and transportation were among the industries with the highest increases in compensation.

About 23 percent of small-business owners cited difficulty finding workers with the necessary skills and qualifications, the highest share since 2000.

"Today's strong labor market is putting many job seekers in the driver's seat, and that's starting to translate into pay gains," Chamberlain said.

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