With the release of the Department of Labor’s May Employment Situation Report, another month of labor market progress was put on display. The data tell the story of an economy and a labor market that are healing, yet there was also evidence of deep scars.
The jobs report showed that U.S. employers expanded payrolls by 217,000 jobs last month, a slightly greater gain than the average of 214,000 jobs added per month in 2014. May marked the fourth consecutive month in which job creation surpassed 200,000, an important benchmark for the health of the economy. Now, “people will start accepting that the labor market is working better than people think it is,” IHS Global Insight chief U.S. economist Doug Handler told The Washington Post. The labor market has indeed achieved an important goal: May’s employment gains mean the jobs lost during the recession have been recaptured, leaving employment at an all-time high of 138.4 million.
Of course, in the five years of the recovery, the U.S. population has grown, and so the percentage of Americans that are employed remains smaller than before the recession began. According to an analysis conducted by the liberal Economic Policy Institute, more than 7.1 million jobs need to be created to fill that gap. That indicates to Economic Policy Institute economist Heidi Shierholz that the United States is “far, far from healthy labor market conditions.” The labor force participation rate remains low by historical standards, long-term unemployment is still elevated, and many workers are underemployed.
But surveys of worker confidence, May hiring numbers, jobless claims figures, and the Labor Department’s Job Openings and Labor Turnover Survey indicate that progress is being made in the labor market.
In May, Gallup’s U.S. Job Creation Index reached its highest level in six years, surpassing the plus 26 reading recorded in January 2008, when the recession was pushing employers to lay off workers. By the end of the economic downturn, 8.7 million jobs were lost, and the index had sunk to a record low of minus 5.
But worker sentiment has steadily — although with some major setbacks — trended upward since hitting that low, reaching plus 27 in May. Gallup determines how the American public views labor market conditions by subtracting the percentage of workers who say their place of employment is letting workers go and reducing the size of its workforce from the percentage who say their employer is hiring and expanding the size of its workforce. In general, the index represents employee perceptions of “net hiring” at their workplaces.
As the Gallup report noted, employers are hiring workers at a strong pace, and employment gains have allowed Americans to spend more. Both those factors are important signs of a healthier U.S. economy. But Americans still rate economic conditions more negatively than positively, a natural response, given that many economic signals remain shaky: gross domestic product contracted in the first quarter of 2014, and unemployment rates remain higher than pre-recession levels.
Jobless claims, which serve as a proxy for layoffs, highlight the fact that unemployment is returning to acceptable levels. 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 of 320,000 new claims. Economists say any claims figure below 350,000 indicates moderate job creation; job creation beat expectations last month.
But “lower claims, all things being equal, are going to lead to better payroll growth,” noted RBS Securities economist Guy Berger in an interview with Bloomberg. The number of Americans filing initial applications for unemployment benefits once again rose in the first week of April, climbing by 4,000 new claims to 317,000, according to the Labor Department’s Thursday report.
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 modest increase in applications for unemployment benefits, the the four-week moving average reversed a several-week-long trend, rising 4,750 to 315,250. That increase lifted the measure from a seven-year low.
Job Openings and Labor Turnover Survey
Alongside April’s massive hiring spurt, available job openings increased, returning to levels last seen in September 2007 and building on strength evident in March, when employers advertised far more jobs than in the previous month. The Labor Department’s Job Openings and and Labor Turnover Summary (JOLTS report) is evidence that employers needed more workers in April to manage the stronger demand of a rebounding economy. The number of positions waiting to be filled rose by 289,000 to 4.46 million.
What’s encouraging is that the number of Americans voluntarily quitting their jobs rose to 2.47 million from 2.46 million in the prior month, leaving the quits rate — a measure of how willing workers are to leave their jobs — constant at 1.8 percent. By comparison, a reading of 2.1 percent was recorded before the recession began. “When workers are scared they won’t be able to get other jobs, they show a reduced willingness to quit their jobs,” Federal Reserve Chair Janet Yellen said at a March 19 news conference following the policy-setting Federal Open Market Committee meeting. “Quit rates now are below normal pre-recession levels, but on the other hand, they have come up over time, and so we’ve seen improvement.”
Regardless of the greater demand for labor, the data showed that the number of people hired remained constant at 4.71 million in April, keeping the hiring rate at 3.4 percent. That is far higher than the average of 2.8 percent recorded last year. The pace of firing also increased, while total separations — which include layoffs, discharges, and quits — remained unchanged from March.
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