Hiring typically increases in the spring and the summer months.
In April, the headline numbers from the Department of Labor’s Employment Situation Report were staggering, beating economists’ expectations handily. That month, the United States economy created 288,000 jobs, pushing the unemployment rate down 0.4 percentage points to 6.3 percent, the lowest in more than five years. The last time U.S. employers added more jobs was in January 2012. And that weighty jobs growth was largely the result of the labor market catching up from the winter slowdown. But with the end of weather-related distortions, the labor market is expected to have stabilized and job creation to have slowed in May. Economists predicted that employers added a more modest 218,00 jobs to payrolls last month. Payroll numbers tabulated by ADP in conjunction with Moody’s Analytics reflected a similar slowdown; April’s 215,000 payroll additions were followed by May’s weaker 179,000.
Stabilization, in the most general sense, tends to be seen as a positive. But it can be hard to see the positives when the are accompanied by a slowdown in hiring and an increase in the unemployment rate. In addition to weaker job creation, economists also expected the jobless rate to jump from April’s 6.3 percent to 6.4 percent. But that is actually an encouraging sign for the labor market. April’s Employment Situation Report revealed that the unemployment rate had fallen from 6.7 percent to 6.3 percent. However, that 0.4 percentage point drop in the unemployment rate came from a sizable decrease in the labor force, meaning workers were still discouraged and unable to find employment. And that aspect of the jobs report was by no means surprising; a disheartened labor force and a record low labor force participation rate has characterized the recovery and is evidence that recovery has not yet reached all Americans. By comparison, the expected 0.1 percent increase means more people are entering the labor force in search of work, and that is an indication that job hunters are becoming more confident in the health the labor market.
Ahead of Friday’s Labor Department jobs report, three additional sources of data can provide further insight on how the labor market’s recovery progressed last month.
1. Jobless claims
Jobless claims — which serve as a proxy for layoffs — highlight the fact that emerging unemployment is returning to acceptable levels. Or, in other words, fewer Americans are being laid off, even if the nation’s long-term unemployment level remains elevated. Looking broadly at the month of May, initial applications for unemployment benefits did not rise above 326,000 — which is fairly consistent with pre-recession levels, when the labor market’s normal job churn resulted in an average number of 320,000 first-time claims. Plus, economists say any claim figure below 350,000 indicates moderate job creation. However, while the long-term trend in jobless claims is one of decline, examining weekly numbers shows progress can be rather uneven. For example, jobless claims dropped just as often as they rose in May.
Most recently, claims increased. The Labor Department reported Thursday that Americans filed 312,000 initial jobless claims in the week ended May 31, a jump of 8,000 applications from the previous week. But still, claims remain near a seven-year low. Earlier this month, of 297,000 Americans filed initial applications for unemployment benefits, meaning the last time jobless claims — and by association, emerging unemployment — fell so low was before the financial crisis and subsequent recession.
Jobless claims provide the first look at the employment situation for any given month, but since the weekly figures can be volatile, economists use the four-week moving average to understand wider trends in employment, which are far more telling of labor market health than weekly readings. Alongside the sizeable decrease in benefit applications, the the four-week moving average continued to decline, falling 2,250 to 310,200. With that drop, the measure is at the lowest level recorded since June 2, 2007 — when it was 307,500. And that “trend in the data is indicative of some recent improvement in the labor market,” as J.P. Morgan Chase economist Daniel Silver told The Wall Street Journal last week. Yet, as RBS Securities economist Omair Sharif noted, initial jobless claims have rarely stabilized at or below that key 300,000-claim level.
Meanwhile, the number of workers continuing to draw unemployment benefits declined by 20,000 to a seasonally adjusted 2.6 million in the week ended May 24. That is the lowest level of continuing claims recorded since October 2007.
It is important to remember when analyzing jobless claims that the numbers are a leading economic indicator, and therefore only offer indirect clues about the pace of hiring — the other piece of the labor market story. And, generally, recent data has provided a reason for economists believe job creation — while steady — is not rebounding as strongly as expected.
The general downward trend of jobless claims offer a sign that business remain confident enough to keep workers even if they are not inclined to increase payrolls significantly. A Thursday report from the global outplacement consultancy firm, Challenger, Gray & Christmas confirms the narrative jobless claims data has been creating. In May, job cuts did climb to the highest level in more than a year, with employers announcing plans to reduce payrolls by 52,961 — a 31 percent jump from April’s 40,298 announced layoffs and 46 percent higher than the 36,398 job cuts announced in May 2013. But that increase was not a signal of growing problems with the economy. Rather, the monthly total was inflated because of massive layoffs by Hewlett-Packard (NYSE:HPQ), which is suffering from changing technological trends.
“Despite the May surge resulting from the latest H-P cuts, the overall pace of downsizing has slowed from year ago. While some industries, including computer, have seen an increase in job cuts, most of last year’s leading job-cut industries have experienced a decline. And, as we approach the midway point of the year, we do not expect a second-half surge in downsizing unless there is a sudden and severe shock to the economy,” said John A. Challenger, chief executive officer of the firm.
Plus, a number of recent economic “reports suggest continued growth in the coming months,” he added. “Factory orders increased for the third consecutive month in April and automakers are reporting strong sales.”
Unsurprising — given Hewlett-Packard’s decision to cut 16,000 jobs as part of its plan to “reengineer the workforce to be more competitive” — the computer industry led the month’s layoffs with 18,799. May’s computer industry layoffs are the largest since May 2012, when massive HP job cuts pushed the total to 27,754. For 2014, the computer industry has been the top source of job cuts, announcing 29,863. And the retail sector follows, with 25,696 job cuts announced in 2014. “Five-figure job-cut announcements, such as Hewlett-Packard’s last month, have been rare since the recession ended in 2009,” commented Challenger. “The last time we saw a figure on this scale was February 2013, when JP Morgan Chase announced a large reduction in the number of bankers in its mortgage unit, most of whom were hired in the wake of the recession to deal with the flood of foreclosures and the refinancing of troubled loans.”
The transportation sector announced 6,884 planned job cuts in May, health care layoffs totaled 3,919, government layoffs came in at 3,248, and other services cut 2,728 jobs.
3. Gallup payroll-to-population
Over the past several months, Gallup’s payroll-to-population measure has ‘lagged behind the performance in the same month in previous years,” noted the report. But in May, the U.S. payroll to population employment rate hit 44.5 percent — an increase from April’s 43.4 percent and slight uptick from May 2013’s 43.9 percent. And that “recent rise may signal a break from that [recent] pattern.”
Over the past five years of the recovery, the highest this measure has reached is 45.7 percent, which came in October 2012.
Unlike the population-to-payroll ratio, which like the name suggests is based on the total U.S. population, the unemployment measures tracked by Gallup and the Labor Department’s Bureau of Labor Statistics are percentages of the U.S. workforce. For reference, Gallup’s measure of unemployment is tabulated differently than that of the Labor Department; Gallup’s interviewees are 18 and older, while the BLS surveys Americans 16 and older. Gallup also tabulates data much more frequently. And in May, the research firm recorded a workforce participation rate of 67.6 percent, an increase from April’s 66.0 percent but below May 2013’s 68.4 percent. While the government’s figure is slightly different, the pattern is the same. In April, the U.S. labor force dropped significantly as discouraged workers gave up the job hunt. By comparison, economists expect that percentage rose last month. And indeed, Gallup found worker confidence to be on the rise. Among those Americans who were unemployed in May, 59 percent say they think they will have a job within the next four weeks, a modest increase from May 2013’s 58 percent and well-above May 2012’s 54 percent.
That confidence does mirror Gallup’s dropping unemployment measure. In May, the jobless rate stood at 7 percent, similar to April’s 7.1 percent, but down from May 2013’s 7.9 percent. “From a broad perspective, apart from some short-lived increases, unemployment has been trending down since early 2011, when it was 10.3” percent, the report read. The firm’s underemployment measure — which combines the unemployed with those who are working part time for economic reasons — was 16.4 percent in May.
More From Wall St. Cheat Sheet:
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