The headline numbers for the May jobs report are about what you would expect for a New Normal economy stuck in 2% growth mode: 175,000 net new jobs last month, the unemployment rate ticking up to 7.6%. No broad signs of acceleration; just the opposite, in fact. As Barclays bank points out, the three-month average increase in nonfarm payrolls through May is now 155,000 vs. a first-quarter average of 207,000. (And at May’s pace of job creation, it would take another 58 months to get back to 5% unemployment.)
In addition, hours worked grew at a 1.9% annualized rate in April and May versus the 3.6% growth seen in the first three months of the year. This downshift reflects a slowing in GDP growth. The bank’s tracking estimate for real GDP growth in the second quarter stands at 1.2%, down from 2.4% in the first quarter.
And what kind of jobs are being created? As economist Dean Baker of the Center for Economic and Policy Research points out, job growth was again narrowly concentrated, with the restaurant sector (38,100 jobs), retail trade (27,700) and temporary employment (25,600) accounting for more than half of the job growth in May. Baker: “These are all low-paying sectors. It is worth noting that the job growth reported in these sectors is more an indication of the weakness of the labor market than the type of jobs being generated by the economy. The economy always creates bad jobs, but in a strong labor market workers don’t take them.”
Indeed, restaurant jobs make up just under a tenth of total US nonfarm jobs, but they accounted for more than a fifth of the jobs created last month.
Another sign of internal labor market weakness: the underemployment rate of 13.8% — which includes part-timers who would prefer full-time work — remains more than six percentage points above the “real’ unemployment rate. Before the Great Recession, that gap was typically less than four points. Indeed, 5.7% of US nonfarm workers are now “part-time for economic reasons” — either their hours were cut back or they can only find part-time gigs — vs. 3.2% precession.
No wonder we’re getting anemic wage growth. JPMorgan: “Wage gains remain pathetic, as average hourly earnings were unchanged last month. … After ramping up late last year and early this year, the trend in labor income is cooling off a bit, as total private wages are increasing at a modest 2.9% annual rate in the three months ending in May.”
Possible suspects include Obamacare, automation, and weak labor demand. Several other observations:
1. The labor force participation rate ticked up to 63.4%. If that rate were back to where it was in January 2008, the unemployment rate would be 11.4%. Even assuming for demographics like the aging of the population, a normalized unemployment rate would be over 9%.
2. The share of the adult population that’s employed remained stuck at 58.6%. While the unemployment rate has fallen over the past 3½ years to 7.6% from a high of 10%, the employment-to-population ratio has risen only from a low of 58.2% in 2011 vs. 63.4% pre-recession.
3. As the below chart shows, the official unemployment rate remains far above what Team Obama predicted back in 2009 if Congress passed his $800 billion stimulus plan: