Hiring Jumped in May

Payroll employment rose by 559,000 jobs in May, after increasing an upwardly revised 278,000 in April. That is up from the 458,000 average pace we have seen since the start of this year but 7.6 million still in the hole as of February 2020. We are not expecting to cross the precrisis peak until well into 2022. Private sector payrolls expanded 492,000. A surge in hiring in education as schools reopened at the state and local levels more than accounted for the gains in public sector hiring.

May job gains were dominated by a 292,000 jump in hiring in leisure and hospitality. That marks a slowdown from last month; seasonal adjustment of the data held back overall gains. Leisure and hospitality hiring surged by nearly 600,000, before the seasonal adjustment, close to the pace in April. Gains were concentrated in food and accommodations. Gains in amusement parks and gambling picked up during the month. Las Vegas hotels were booked solid during the Memorial Day weekend. Consumers fatigued by lockdowns are scrambling to book vacations for the summer. People who have never flown before are flying now to escape the confines of their homes and see relatives.

Hiring by health care and social services increased by 46,000. Hiring at doctor and dental offices and labs picked up as people rushed to catch up on routine check-ups and tests that were delayed during the worst of the pandemic. Hiring at day care facilities accounted for the bulk of the rise in social services but is still off 13% from the peak in February. Funds for day care facilities were provided in the most recent emergency and stimulus package.

Hiring in education and day care facilities is critical to bringing back to the labor force many mothers who are earning lower wages. Look for those gains to continue when summer camps return.

Manufacturing employment reversed most but not all of the losses we saw last month. Gains were concentrated in the vehicle sector, which has been hit by semiconductor chip shortages. Professional services posted moderate gains with the bulk of hiring in administrative and accounting positions. Hiring in real estate leasing picked up as workers continued their slow return to offices. Dry cleaners also benefited during the month.

Construction employment lost ground. Labor and supply shortages forced builders to pull back on their usual spring hiring. Before seasonal adjustment, construction hiring was up more than 100,000 jobs in May.

Average hourly earnings jumped 0.5% in May and 2% from a year ago. The annual gains understate the rise in low-wage earnings we have seen since the onset of the crisis. Hazard pay and efforts to boost wages by retail behemoths Walmart, Amazon and Target have intensified the competition for low-wage workers at small businesses. The number of hours worked for a week held at 34.9, close to a record high. Overtime hours were up in heavy manufacturing.

Separately, the unemployment rate fell 0.3% to 5.8% in May. Participation in the labor market dropped slightly from April. A pickup in the participation rate by white and Hispanic women was not enough to offset a drop in participation by men. Black women, who gained ground last month, lost ground in May. The participation rate for teenagers declined as schools reopened but is still up slightly from February 2020 levels. The participation rate of teens has been on the decline for decades. It peaked at 59.3% in August 1978; in comparison, the participation rate for teens was 36.8% in May.

Part-time employment for economic reasons rose for the first time in three months; it’s up 873,000 since the onset of the crisis. These are workers who were forced to accept part-time instead of full-time jobs.

Retirements have surged since the onset of the crisis, especially by those with a high school degree or less. Employers are being forced to cast their nets wider to replace and lure back workers. The ranks of the long-term unemployed dropped by more than 400,000 in May, the fastest decline since 2011. That marks the second month in a row of declines and is reflective of the desire of low-wage workers to return. A job lost to the pandemic is not a stain on an employment record like other long-term unemployment has been.

The underlying unemployment rate, which adjusts for those missing from the labor force since February 2020, fell to 7.8%, after peaking above 20% during the worst of layoffs in April of 2020. Those figures overstate the current unemployment rate because many of those who were working in February of 2020 have now retired. Former Council of Economic Advisers (CEA) Chair Jason Furman’s estimate of those still realistically in the labor force is close to 7.3%, which is still high.

Bottom Line
The labor market is healing but not as rapidly as the overall economy. Consumers are spending and businesses are reopening faster than many employees are able or willing to return to work. A return of day care centers, summer camps and schools in August will all help alleviate those hurdles.

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