Payrolls rose just 38,000 during May, the weakest gain since September 2010, and the previous two months were revised downward by 59,000 collectively. However, something just doesn’t add up with these weak numbers. Consider the following:
(1) Record job openings. In March, total job openings rose to 5.76 million, nearly matching July 2015’s record high.
(2) Solid ADP payrolls. Private-sector payrolls as measured by ADP rose 173,000 during May, well above the measly gain of 25,000 reported by the Bureau of Labor Statistics. So far this year, the former is up 940,000 while the latter is up 699,000.
(3) Confidence survey upbeat. In the Conference Board’s monthly survey of consumer confidence, the percentage of respondents who said jobs are plentiful remained around recent cyclical highs at 24.3%.
(4) Earned Income Proxy still rising. Our Earned Income Proxy for total wages and salaries in the private sector rose 0.3% m/m during May to a new record high. It reflects the tiny increase in private payrolls as well as the 0.2% increase in average hourly earnings; the average workweek was unchanged. The EIP is up solidly by 4.2% y/y. (See our YRI-EIP.)
(5) Troubling signs. I think that in the worst-case scenario, the latest payrolls suggest that there may be a big skills mismatch between all those unfilled jobs and the available workers to fill them. More likely is that May’s weak report is misleading, though we are disturbed by the downward revisions in the prior two months. The 12-month sum of those revisions remains positive, but barely so—which in the past has been a harbinger of trouble for the labor market.
Furthermore, in May the percentage of industries reporting higher payrolls fell to 51.3% on a one-month span and 53.2% on a three-month span. Both are the lowest since 2010. May’s non-manufacturing PMI fell from 55.7 during April to 52.9 last month partly because its employment component fell from 53.0 to 49.7, back down at February’s reading, which was the lowest reading since February 2014.
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