Job Gains Moderate in May

Payroll employment is expected to rise by 330,000 in May, a moderation from the 428,000 pace of April. That is still nearly double the subdued pace of monthly job gains of the 2010s. Private payrolls are expected to account for 315,000 of those gains.

The pivot from spending on goods to services is expected to slow employment gains in Big Box discounters and online retailers, but spur gains in everything related to travel and tourism. Leisure and hospitality and anything related to travel are expected to remain buoyant.

Even with those gains, leisure and hospitality employment is expected to remain more than 1.2 million shy of the peak of February 2020. Losses in leisure and hospitality more than account for the shortfall in overall employment from the peak.

Airlines reported a 25% surge in air travel over the Memorial Day weekend this year over last year; the biggest hurdle to staffing up are acute shortages of pilots, many of whom retired at the onset of the crisis.

Gains in professional services are expected to remain buoyant; the sector was already 760,000 jobs above the peak hit in February 2020 in April. The bulk of the gains have come in full-time hires. Large builders have reported turning to temp agencies to fill construction jobs in recent months.

Manufacturing activity ramped up during the month; vehicle dealers are still selling all they can produce, while investment in capital equipment remained strong. That suggests additional gains in the manufacturing sector. Recent lockdowns in China work with a lag and are expected to be harder on retailers for the back-to-school and holiday seasons. The unwanted surge some retailers have seen in inventories is likely to be short-lived.

Mining activity is picking up in response to the surge in oil prices. Last month saw the largest monthly gain in mining employment on record but the numbers are small. Rig and steel shortages, capital discipline and higher insurance and financing costs for carbon producers are limiting the ramp up in the oil patch; U.S. production remains below the peak we hit in January 2020.

Average hourly earnings are expected to rise 0.3% from April to May. That translates to a 5.2% gain in wages from a year ago, a slight cooling from the 5.5% pace of April. Average hours worked per week is expected to tick up slightly to 34.7 from 34.6 in April. This will help to buoy growth in weekly earnings.

Separately, the unemployment rate is expected to edge down to 3.5%, matching the low of February 2020. Participation in the labor market is expected to pick up a bit, after losing ground in April. A wild card is the current Omicron wave, which is sidelining workers and beginning to show up as an increase in hospitalizations.

Labor supply has picked up significantly since the fall of 2021. Part of that reflects the move up in wages. A less favorable reason is the rise in inflation which has made it more difficult for low-wage workers and households on fixed incomes to make ends meet. Multiple job holders are up significantly since the fall of 2021; a surge in women taking on more than one job is driving those gains. A swath of those over 65 who had retired are also coming back.

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