U.S.: Solid Job Gains

The revival of the labor market is confirmed from one report to the other. In May, everything points to strength: even the 0.1 pt increase in the employment rate is no bad news, as it comes from a rebound in the labour participation ratio. With payrolls up, hours worked up and hourly earnings growing faster than inflation, consumption is very likely to remain resilient

In May, the U.S. economy added 175,000 new positions, after 149k and 142k in April and March, respectively. The message is not so clear to read, as on the one hand, the acceleration is obvious. On the other hand, it was made possible thanks to downward revisions to April's data.

However, through details, optimism shall dominate. For sure, the unemployment rate came up, from 7.5% to 7.6%, but the increase was mainly attributable to a gain in the labour force participation ratio, from 63.3% to 63.4%. This could be the sign that the confidence of discouraged job seekers is progressively improving. The positive momentum is also illustrated by the decrease of other measures of labour underutilisation, such as the wider-definition U5 and U6, both down from one month to the other.

Another positive element lies in the steady rate of hourly earnings growth, at +2% y/y for the second month in a row. This is still rather slow, but faster than in early 2013 (+1.8% in May), while this rate now stands above the rate of inflation, allowing an increase in the purchasing power of wages. As employment, weekly hours worked and hourly earnings are all moving in the right direction, May is very likely to have seen a positive trend in consumption. Retail sales data to be released next week are very likely to be positive.

As for the reasons for unemployment, the May labour market report provides very encouraging news, as the number of job leavers increased rather markedly in May, another sign of households gaining confidence on employment prospects.

As for the break-down of job creations, while manufacturing payrolls were slightly down (8k), the construction kept on increasing employment. The revival of the latter is particularly obvious when one compares the unemployment rate for those workers. It stood at 14.2% last year and now is 10.8%, a 3.4 pp improvement, almost six times the decrease of the overall unemployment rate. But the bulk of the growth in employment remains in the service sector, at +179k in May, with across-the board strength.

BY Alexandra ESTIOT

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