Has a policy maker ever said that “strength” was transitory and “we expect conditions to worsen away from target over the medium term”?. Anyway, the May employment report was strong pretty much across the board.
As always - we’re not big on adding to the noise of manic data reporting on employment Friday but below are some quick highlights. If you have any specific questions or would like to dig/discuss a particular dimension of the labor market in more depth, let us know.
- Payrolls: RoC Solid - NFP & Private payrolls improved both sequentially (MoM and 3M/6M MA) and in RoC terms. March/April get net positive revision of +32K
- Unemployment Rate & LFPR : Off the Lows - Unemployment rate ticked up to 5.5% but the internals were largely positive with labor participation rising for a second month and the chg in employed > chg in unemployed.
- Wages: Golf Clap - Both Total Private & Nonsupervisory Worker wage growth accelerated sequentially (from sub-middling to more discretely middling). ECI and NFIB data continue to suggest forward wage inflation but that been true for a while; material BLS reported wage acceleration has remained a panglossian phantasm.
- Slack: Paint Still Drying - The U-6/Underemployment rate held at 10.8%. From a Trend perspective every slack chart looks basically the same (charts at bottom below): The labor markets painfully slow march towards tautness remains ongoing.
- Housing = Mojo Extends to May: Residential Construction employment growth re-accelerated (suggesting ongoing health in demand trends) while 25-34YOA employment again accelerated to a new cycle high - headship rates/HH formation will benefit on a lag.
- Energy Sector: Broad Strength > Concentrated Weakness - The bleed in Energy sector employment continued in April/May but the concentrated weakness continues to get swamped by the broader labor mkt strength.
- (Firm) Size Matters: Small Firm employment (1-499) growth is carrying the load (+2.5% YoY) according to the latest May ADP data. Large & Extra-Large Firm employment remains in multi-month deceleration mode currently.
- Income/PCE: Its Just Math - The net of rising employment + rising wages + flat hours worked should = another solid month of reported aggregate income growth in May. Whether that income actually gets spent is a different question but rising income + rising savings remains a positive for the aggregate household PnL/BS. Salary and wage income remains of particular import as it has been the primary source of funds for households as credit growth has remained somewhat muted. We’ll get the April consumer credit figures this afternoon
- Policy = Don’t Call it a Comeback: The May data is probably irrelevant for direct policy action in June but it will likely serve as a backboard in the framing of the June meeting statement (i.e. 1Q probably represented transitory weakness and ‘we expect employment/inflation to trend toward target over medium term’)
A visual tour of the data is below. Have a great weekend.
Christian B. Drake