Labor Market Pop
Updated: Jun 4
Continuing in the “pick a survey, any survey” vein, labor market data out today are playing different tunes, depending on what you are listening for.
Different strokes for different folks
The Bureau of Labor Statistics' monthly labor report includes results from two labor market surveys for May. The first, the establishment survey, showed robust growth in filled jobs, up 339,000 from April, nearly twice the consensus among forecasters. This strong job growth suggests that at least for now businesses overall are happy to keep adding workers to their payrolls. Strength was not uniform across industries, with some service sectors adding workers at a rapid clip, softer conditions in construction, and net job losses in manufacturing, an area that has been essentially in recession for a half year now.
BUT, results of the separate survey of households were more downbeat. The number of people saying that they were employed fell by 310,000. With the size of the labor force holding steady, that pushed the unemployment rate up from 3.4% in April to 3.7% in May.
Should I stay or should I go now?
The two surveys—one of businesses and the other of households—tend to track each other fairly closely over the medium-term, but they can diverge in the short run. Not only do they come from different sources, but the nature of the data they cover is somewhat different. The establishment survey only covers payroll employees of businesses, while the household survey includes self-employed people.
That turned out to be an important difference last month. In the household survey, business employee numbers rose, but the level of “unincorporated self-employment”—which includes independent contractors and some small businesses—fell sharply. It’s hard to know what to make of this. Is the drop in this category a leading indicator of softening activity in personal service areas? Or are we just seeing a readjustment as people are able to pivot away from pandemic-era gig work to "regular" business employment? There is not sufficient detail in the survey to tease that out.
Other data in the labor report reinforce the notion that labor markets are not as tight as the payroll employment numbers suggest. Importantly, wage growth continued to ease slightly, although it still remains at a high level that is inconsistent with a balanced labor market and medium-term price stability.
What’s the Fed gonna do, gonna do with it?
Today’s labor market report one of the last major pieces of data before the Federal Open Market Committee meets June 13-14. (The May CPI will come out the day of the meeting.) The question is whether the gangbusters payroll jobs data will be sufficient to prompt another quarter-point interest rate hike. One might think so, since other recent indicators—like PCE inflation data—have also come in strong. But comments by Fed officials have broadly hinted at a rate-hike pause in June to see how the past year’s monster rate increases are feeding through to the broader economy. And the Fed these days seems to want to avoid surprising markets if it can. So a June pause may be baked in to Fed thinking.
But don’t be surprised if the Fed is back to playing more ominous music in July.