Here’s the ‘bad news’ in the ‘good’ jobs report

Here’s the ‘bad news’ in the ‘good’ jobs report
  • PublishedJune 8, 2024

At a time when Americans and the Federal Reserve are clamoring for clear-cut data about the state of the economy, Friday’s jobs report was much more opaque than everyone had hoped.

While “it’s hard not to like a lot of jobs,” as economist Dean Baker told CNN, other contents of the May jobs report add to the pile of unwelcome economic news that has included slower GDP growtha pullback in some spending and a rise in credit card delinquencies.

“The good news is we saw the explosion in payrolls. The bad news is the rise in unemployment with an acceleration in wage gains,” Diane Swonk, chief economist with KPMG, told CNN.

Unemployment rose

The unemployment rate rose to 4% from 3.9%. It’s the first time in more than two years that the jobless rate is not below 4%.

The rise in unemployment can be traced to the findings of the household survey (one of two surveys that feed into the monthly jobs report). Compared to the establishment survey that showed the robust 272,000 net gain in jobs, the household survey faltered.

Employment as measured by household survey responses fell by 408,000 in May from April; the number of people in the labor force fell by 250,000; the labor force participation rate inched down to 62.5% from 62.7%, Gus Faucher, PNC chief economist, noted Friday.

“Jobs declined in the household survey, but that number is more volatile than the employer survey,” he wrote.

And while unemployment rose only slightly, by 0.1 percentage points, it landed at a number that could have a psychological component.

“4% is thought of as a magical number — a number below which participation rises, below which we tend to see employment rates increase faster for women and for minorities,” Julia Pollak, chief economist of ZipRecruiter, told CNN earlier this week.

“Employers in a tight labor market, they have to do extraordinary things; they have to cast a wider net; they have to actively recruit non-traditional candidates; they have to offer more attractive job conditions, more flexibility, think about installing air conditioning in their trucks or offering a bus to employees. So, it is kind of a magical number,” Pollak said.

Wage growth also rose

Stronger-than-expected wage gains for the month pushed up average hourly earnings to 4.1% over the past year, reversing a monthslong trend of cooling.

“The Fed doesn’t directly target wages; but where the wages picked up are in the [service sector] areas where we’ve seen the most inflation,” Swonk said.

That’s in the service sector, everything from personal care services, dry cleaning, cleaning and home maintenance and vehicle maintenance, she said.

“And that is something that is hard for the Fed, because in order for some of the increases we’re seeing in the service sector, we need to see offset in goods prices in order to bring inflation down,” she said. “But you need a lot of that consistently to deal with stickier inflation that we’re seeing in the service sector; and, unfortunately, wages matter more in particular areas where inflation has gotten stickiest.”

Weak spots are appearing in the labor market

A report released Thursday showed that fewer job cuts were announced in May than both the month and year before. That’s really good news for Americans and recession worrywarts, but the same report also noted that hiring announcements slumped as well.

Through May of this year, US-based employers have announced plans to hire 50,833 workers, marking the lowest total for the first five months of the year since 2014, according to Challenger, Gray & Christmas data released Thursday.

“The typical churn in a healthy labor market appears to be stalling,” Andrew Challenger, senior vice president of the outplacement and business research firm, said in a statement.

While hirings have retreated, and job openings have declined, the number of layoffs remain low. Weekly jobless claims remain below pre-pandemic levels, and Challenger’s own report shows a 20% drop in job cut announcements as compared to May 2023.

“There are ample signs that the heat in the labor market over the past few years largely has been removed,” Wells Fargo economists Sarah House and Mike Pugliese, wrote Friday.

The overall economy is slowing

Last week’s gross domestic product report, which measures all the services and goods produced in the economy, showed a 1.3% annualized rate. That’s down from the 1.6% reflected in the first estimate.

The lower pace of economic expansion was largely due to a downward revision to consumer spending, which accounts for about 70% of the US economy. Spending advanced 2% in the January-through-March period, compared to the initial rate of 2.5%.

The latest GDP report also showed that corporate profits, before taxes, fell 0.6% in the first quarter, the first decline in a year and down sharply from the 4.1% increase in the prior three-month period. Still, while most corporate earnings results this quarter proved decent, companies indicated it’s become increasingly difficult for them to pass on costs to consumers.


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