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Each month the U.S. Bureau of Labor Statistics issues a job report detailing how many jobs were added over the prior month, what the unemployment rate is, and other employment and wage figures.
After steadily improving for the last two years, job growth slowed in May to the lowest monthly growth rate since September 2010. Nonfarm payrolls grew by just 38,000, much lower than the forecasted 160,000 jobs (matching April’s pace). The heaviest losses were in construction, manufacturing and mining.
On the other hand, the U.S. unemployment rate, an important indicator of economic performance, dropped 0.3 percentage points to a pre-recession level of 4.7 percent. The actual number of employed persons declined by 484,000. The misleading part? That drop reflects a smaller workforce. Today fewer people are looking for a job, and fewer people are willing and able to work.
The labor force participation rate dropped to 62.6%, and the number of people working part time due to economic reasons (also referred to as involuntary part time workers) increased by 468,000.
In a nutshell, the report was not very positive, and caught a lot of people off guard.
So what happened?
Well, the six-week Verizon strike accounts for a drop of at least 35,000 workers. If we add those jobs back in (the strike is now over), the number is closer to 70,000. Although still not good, the U.S. economy needs about 100,000 jobs per month to stay at what’s considered “full employment.”
And with an unemployment rate of 4.7 percent (basically full employment), we’re likely going to see fewer jobs created every month. So slower growth is inevitable.
Will this trend continue?
Probably not. Although the report was rather alarming, we have to remember that we’re now seeing average hourly wages up 2.5% over last year, consumer spending is quite strong, home construction is on the rise, and there’s no clear evidence that we’re going into a downturn.
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