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US Job Growth Stages Lacklustre Rebound

by Karl Schamotta | June 4, 2021

What happened: Job creation rebounded in the United States last month, alleviating fears of a collapse in hiring – but the headline number disappointed economists, suggesting that the employment market is making a slow recovery. Non-farm payrolls expanded by 559,000 in May, according to data released this morning by the Bureau of Labor Statistics.

Market estimates submitted to Bloomberg before the release ranged between 335,000 to 1 million, but the median forecast was for 678,000. This comes after a big miss in April, when a (revised) 278,000 positions were added, sharply undershooting expectations for more than a million new jobs.

The unemployment rate fell to 5.8 per cent after a surprising increase to 6.1 per cent in the prior month. Markets had expected a drop to 5.9 per cent. 

Earnings rose: Hourly earnings grew 0.5 per cent month-over-month – surprising economists who had expected big growth in low-wage sectors to shift the average down.

Growth was inconsistent: Leisure and hospitality industries added 292,000 jobs in May – with food and beverage establishments adding 186,000 people to payrolls – but the construction sector lost jobs for a second consecutive month.

Full employment remains distant: An alternative measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons – the U-6 rate – fell to 10.2 per cent, down slightly from April. At least 8.5 million more people remain jobless than under a counter-factual job creation scenario, and the employment-to-population ratio, sitting at 61.2 per cent prior to the pandemic, is now stuck at 58 per cent.

Government policy is distorting incentives: While it remains impossible to definitively determine why employees aren’t re-entering the workforce, recent research has suggested that childcare obligations are not playing the biggest role. Instead, it appears that government stimulus payments are the main factor convincing workers to avoid taking low-paying jobs.

But demand for workers is soaring: A record-high 48 per cent of small business owners reported unfilled openings in May, according to the National Federation of Independent Business monthly jobs report – more than at any time in the prior 48 years.

And enhanced benefits are ending: More workers are falling off federal supplements every day, and the Pandemic Emergency Unemployment Compensation programme, which extends insurance to those who exhausted their conventional state and federal benefits is set to end on September 6.

A surge in employment is highly likely to come in the summer months as workers are forced back into the labour force. 

Goldilocks is back: Five-year yields fell, equities jumped, and the trade-weighted dollar tumbled after the release, suggesting that markets expect a not-too-hot, not-too-cold recovery to keep the Federal Reserve’s stimulus efforts going. Central bankers are now expected to wait before signalling a tapering in asset purchases – till the August central bank symposium in Jackson Hole, Wyoming, or the September rate-setting meeting.

In Canada, job destruction exceeded expectations: 68,000 positions were lost in the month of April as new lockdowns froze economic activity in the country’s biggest provinces. The unemployment rate climbed to 8.2 per cent, from 8.1 per cent in the previous month.

But objects in the rear-view mirror are farther than they appear: A sharp rebound is likely to come in June as vaccinations pick up speed and social distancing restrictions are rolled back. The Canadian dollar, largely traded on expectations for the future, remains essentially unmoved, holding position just above a key psychological resistance point (read: round number).

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