Payrolls in May grew by just 138k, well below the expectations of 182k and the two prior months were revised down by a net 66k. Within this, the private sector added 147k jobs (government shed 9k), almost 30k less than expected and the two prior months were also revised lower. Also of note, the household survey said 233k jobs were lost (of which 168k was in the key 25-54 yr old cohort and another 70k for those aged 20-24 while 55+ job growth was up) at the same time 429k people left the labor force and thus the one tenth drop in the unemployment rate to 4.3% was for the wrong reasons. The U6 level fell two tenths to 8.4%. The service sector added 131k jobs with the goods side contributing just 16k with construction adding 11k while manufacturing shed 1k. Retail jobs continue to be lost with another 6k in May and that’s the 4th month in a row of declines.
Wages were up by .2% m/o/m and 2.5% y/o/y, the same modest trend as seen in line with expectations. Hours worked stayed at 34.4 and average weekly earnings held at 2.5% y/o/y. Aggregate hours worked did hit a new high in this recovery which with still modest GDP growth means that productivity remains punk.
Discouragingly, the employment to population ratio fell two tenths to 60% and the participation rate fell back to 62.7% which matches the lowest since November. Those Not in the Labor Force spiked by 608k to the most since December.
Positively, those working part time because they can’t find full time work continues to drop and more people voluntary left their jobs as opposed to being fired.
Bottom line, ADP was off way compared to what the BLS said. This number should remind all that we are late cycle in this economic recovery where the supply of labor continues to shrink at the same time the auto sector (about 5% of US employment) is rolling over, retail elsewhere is a complete mess in brick and mortar and capital spending remains soft. Private sector job growth is now averaging 126k over the past 3 months vs 159k over the past 6 months, and 179k over the past 12 months. The average was 213k in 2015 and 239k in 2014.
The 2s/10s spread is now down to 89 bps, the lowest since early October and the disconnect between the message it is saying and the ebullience in US stocks continues to widen.
2/10 Spread (2 years)
What does this mean for the Fed? They are stuck because the unemployment rate can continue to fall with job growth this slow which then further tightens the labor market and creates tinder for inflation according to their econometric models. Expect a June rate hike and the long end of the US yield curve is smelling out what this means for future growth.