Payroll employment increased by a paltry 69,000 in May and was revised down significantly for April and March. Those were the first back-to-back downward revisions we have seen in 20 months and mimic a pattern in weekly jobless claims. Initial jobless claims have been moving back up in recent weeks, with upward instead of downward revisions to the previous week, which suggests that layoffs are on the rise. The giveback from unseasonably warm winter weather exacerbated May job losses, but can’t begin to explain the increasing weakness that we are seeing.
Moreover, the gap between the private and public sectors widened, with the private sector adding 82,000 jobs and the public sector subtracting 13,000 jobs. This report throws cold water on hopes that much of the job-cutting by state and local governments is behind us, something yesterday’s revisions to first quarter GDP also underscored. The bulk of the losses in public sector employment occurred in cuts to both state and local teaching positions; the remainder was concentrated at the federal level among postal workers.
Wages edged up a modest 0.1%, while hours worked actually contracted. This will take a toll on incomes for May. The only offset is oil prices, which further plummeted in response to the weak employment report, and falling prices at the pump, which will act as a much needed de facto tax cut for consumers this summer.
Separately, the unemployment rate moved back up to 8.2%, with a large and disturbing surge in the number of long-term unemployed (those unemployed for more than six months). This means that either those who have run out of benefits are again looking for jobs after taking a break last month, and/or that people who can’t find a job after six months unemployment are finding it even harder now.
Bottom Line: The U.S. is not an island, and what happens abroad matters here. The weakness in Europe, in particular, has a global reach and is affecting us. Uncertainty at home is also a problem. It is difficult for anyone to commit to hire when growth remains subdued and our fiscal problems both at home and abroad appear to be compounding.