Don’t let the top-line number fool you. The employment report for May was discouraging. Although total nonfarm payrolls rose by 431,000 last month—the biggest monthly gain in a decade—it was heavily padded with the government’s temporary hiring of Census workers. Stripping out the government factor reveals a tepid rise in private-sector nonfarm payrolls of just 41,000, a dramatic fall from April’s 218,000 gain in private-sector jobs. In other words, job creation in real economy is struggling…again. In fact, it looks like it hit a wall in May.
A bit of historical perspective is in order on the difference between total nonfarm and private nonfarm payrolls. The chart below graphs the monthly percentage change in each over the past three years. The message is that private-sector job creation (red line), which had been recovering with a fair degree of strength in recent months, tumbled last month.
It’s not unusual to see temporary setbacks in job creation, and so we should be cautious in reading too much into any one month’s number. But there’s just no getting around the fact that, for the moment, private-sector job creation has come to a virtual standstill after four straight months of improvement. At this late stage, bad news on the employment front carries extra psychological baggage. Indeed, positive expectations jumped substantially in the wake of the April employment report, which boasted the biggest monthly gain in total nonfarm payrolls in four years. A month later, there’s reason to wonder if the momentum in job creation is faltering.
“Hiring looks soft,” Michael Feroli, chief U.S. economist at JPMorgan Chase, told Bloomberg News today after the employment report was released. “It does raise some red flags that businesses are still pretty cautious.”
The concern is less about job loss vs. job creation. The only significant decline in private-sector jobs last month was reported in the construction industry, which shed 35,000 positions. The real trouble is that the gains elsewhere in the private sector were slight last month.
The numbers for May are all the more troubling when you consider that private-sector employment vs. the total nonfarm payroll total (which includes government hiring) has been realtively weak for some time, as our second chart below shows. The numbers in May mean that the private-sector trend is that much deeper in the hole.
We’ve been arguing for some time that the period between the end of the recession and a recovery worthy of the name would be unusually long, primarily because the labor market is at risk of subpar performance. The stalled trend in initial jobless claims has been suggesting as much for months. As we wrote in April, for instance, “the threat of going nowhere fast still looms.”
Meantime, given last month’s renewed deflationary scare (see here and here), and the news that consumers are suddenly reluctant to spend, the latest employment news is one more burden to digest.
Is a new recession looming? No, although it’s tempting to think so, given the run of discouraging news of late. But it looks like the bigger risk at the moment is still the same hazard we’ve been discussing throughout this year: a lengthy stretch of sluggish growth. The Great Recession is over, but the Great Recovery has yet to arrive.