It's difficult to tell from the headlines of May's job situation was good or bad. The unemployment rate slumped to a near-record low of 4.3%, but the nation only added 138,000 new jobs last month. That fell well short of the expected 185,000, and was a bit shocking considering payroll processor ADP reported a whiz-bang beat of its payroll-growth estimates just on Wednesday.
As is always the case, there's more to the story. And in this particular case, it's the "everything else" that's going to really start to matter here, as the unemployment rate itself is nearing its proverbial absolute zero and net job growth is going to slow as most people have jobs... even if one they don't look or doesn't pay them well enough. Indeed, from here the litmus test is going to be wage growth, as companies start to pay more competitively in order to attract increasingly scarce workers.
But, first things first - a look at the job growth and unemployment rate trend.
Here's the same basic data, but from a different angle - the number of people employed, unemployed (officially), and unemployed people who aren't receiving benefits but would like a job.
Interestingly, the number of people with a job actually fell from 153.1 million to 152.9 million last month. So how did we add jobs? More than 185,000 of those people left jobs voluntarily, and didn't necessarily move on to a new employer. That jibes with another decrease in the number of people who are officially unemployed, and another dip in the people who aren't in the labor force but also want a job.
In other words, most everyone who really wants a job has one, and some people -- more than in the recent past -- don't actually want one. The trends also imply some workers are now finding better jobs or have faith that they will, as they're leaving voluntarily.
Further evidence of this idea is found in the labor force participation rate and the employed/population ratio. Both fell last month. The slide in the labor force participation rate from 62.9% to 62.7% indicates a small band of individuals intentionally left a job. The slide in the employment/population ratio doesn't explain why people left, though at least some of it can be attributed to the ongoing retirement of baby-boomers. Either way, in light of all the other data, shrinking numbers in this scenario is actually a sign of encouragement.
The only plausible signs of an improving job growth picture we'll be able to discern going forward will come in the form of longer workweeks and better pay. We saw glimpses of this for last month, though nothing decisively bullish. The average workweek stayed steady at 34.4 hours, and hourly pay rose 0.2% versus an expected 0.3% rise. The chart below shows the workweek through May, though the hourly pay rates are only through April, which is something we hadn't seen in some time.
Even so, between May's higher wages and April's wage increase, employees are starting to see pay increases they hadn't seen in a year. This could be a precursor of economic growth at least partially driven by consumerism.
Ideal? No, but nothing ever is. We are seeing the economic undercurrents moving faster in the right direction though.