The crucial monthly jobs report was a disappointment, as the Labor Department reported Friday, June 4, that the economy added 431,000 jobs in May, well below consensus expectations of 513,000.
Even though the number of jobs added was the highest for a month in more than 10 years and the unemployment rate dropped to 9.7% from 9.9%, 411,000 of May’s increase came from government hiring of temporary census workers. The anemic private sector hiring of 41,000 jobs is the biggest concern for many analysts because the census jobs will dissipate over the summer and it was much lower than April’s rise of 218,000.
“The May employment report underscores the fragility of the economic recovery,” said Ethan Harris, head of Developed Economics Research for Merrill Lynch Global Research, in an analyst note. “We were looking for 200,000 on private payrolls; so, the critical number in today’s employment report is a disappointment. There is no way for us to get around that.”
Some of the weakness in private-sector payrolls stems from a loss of 35,000 jobs in construction and 7,000 jobs in retail.
The underlying positive news in the report was the rise in wages of 0.3%, which Ian Shepherdson, chief U.S. economist at High Frequency Economics, noted as “good news after recent weakness, but the trend is still very soft.”
Harris was not willing to give in entirely to the disappointing news, saying that recoveries didn’t move in a straight line and that payrolls should continue to improve.
“This is not to make excuses but merely to say we are not about to take a hatchet to our year-end payroll estimates based off one lousy month” Harris said. “We reiterate our call for 275,000 MoM private payroll gains on average in the fourth-quarter. If anything, today’s data show that employers took a breath last month–perhaps they were spooked by all the tape bombs that overloaded the news wires or maybe this number was a payback for the outsize gains in March and April.”