Today’s employment report for May isn’t good. It’s not even close to being good. But it’s not surprising. After ADP reported on Wednesday that its estimate of private payrolls suffered a big slowdown in growth last month, today’s disappointing news from the Labor Department was expected, as we discussed two days ago. The question now is deciding if the slump in job creation is temporary or something with legs. That’s not going to be easy until we see more numbers over the next few weeks. Meantime, erring on the side of caution about the macro outlook is the only game in town. It’s too soon to throw in the towel on expecting the recovery to muddle through, but make no mistake: We’re looking at the biggest threat to growth in, well, since this time last year. Yes, the prospect of another summer slowdown has returned.
Actually, the slowdown is already here, as indicated by last month’s downshift in private-sector job creation. Private nonfarm payrolls advanced by a net 83,000 in May—far below April’s 251,000 rise and the smallest gain since June 2010, according to the government’s establishment survey. The main culprit in the reversal of fortunes last month is the dramatic slowing of job creation in the service sector, which minted just 80,000 new positions last month vs. 213,000 in April. Retail trade was especially sluggish, shedding more than 8,000 jobs last month after generating 64,000 previously.
No corner of the labor market was spared. The biggest loser: the nondurable goods sector, which lost 13,000 jobs in May. Meantime, the jobless rate inched higher to an elevated 9.1%.
“It is clear we have temporarily entered a soft patch,” Christopher Probyn, chief economist at State Street Global Advisors, tells Reuters. “Nobody knows how soft and how long, but the best case view is that the fundamentals of the recovery remain intact and the economy will re-accelerate in the second half of the year.”
The optimistic spin is that job creation has stumbled because of the temporary blowback from the Japanese crisis that threw a wrench into the global auto production machine. By this reasoning, the sluggishness will soon retreat as Japan’s economy recovers. Maybe, but we’re on thin ice if our best hope is looking to the long-struggling Japanese economy for salvation. Nonetheless, some reports predict a strong revival for Japan in the months ahead.
Even so, optimism has been defined down in recent days. For instance, Moody’s Analytics forecasts that corporate job creation will run at 200,000 a month on average for the remainder of this year, or more than double the rate in May. Even if you’re on board with that relatively bright outlook, 200k a month isn’t likely to lower the unemployment rate quickly, if at all.
Meantime, the data is what it is, and nothing less than an extraordinarily surge of confidence is necessary to counteract the dark cloud released by the latest data point. “These are pretty bleak numbers,” Julia Coronado, chief economist for North American at BNP Paribas, tells Bloomberg. “Some of the engines of hiring just went away. Combined with the slowdown in consumer spending, it raises concern that the slowing in hiring could be with us for a while.”