Slow Growth Still Prevails In The Labor Market

Today’s updates on weekly unemployment claims and ADP’s estimate of private sector payrolls for May suggests that the labor market continues to grow. The expansion is modest and perhaps vulnerable to the ongoing turmoil linked to the euro crisis, and it’s not likely to impress analysts, but the growth rolls on.

Let’s start with jobless claims, which jumped last week by 10,000 to a seasonally adjusted 383,000, the Labor Department reports. That’s the highest in five weeks and so the rise is sure to fan worries about the economy’s strength. But if you’re looking for clear-cut signs of trouble, it’s not yet obvious that today’s claims numbers are the smoking gun. As the chart below shows, new filings for jobless benefits remain well below the 400,000 mark. Weekly numbers bounce around a lot and so the jury’s still out on whether the falling trend has run its course.

A clearer view of the internal dynamics of weekly claims can be found in the year-over-year change in the unadjusted numbers. By that benchmark, it still appears that the layoffs have downward momentum, as the second chart below reminds. The roughly 10% decline rate remains intact. That’s a sign of progress, even if the weekly seasonally adjusted updates run off course at times.

Whatever good news one may take away from the annual decline in new claims is tempered by the fact that job growth has clearly slowed. Today’s ADP estimate of private nonfarm payrolls for May doesn’t offer much evidence for thinking otherwise. “While May’s increase was the twenty-eighth consecutive monthly advance, it nonetheless reflected a notable slowdown in the recent pace of hiring,” says Joel Prakken, Chairman of Macroeconomic Advisers, which generates the ADP report. “The sharpness of the deceleration seems consistent with other incoming data suggesting the economy, weighed down by heightened uncertainty over the European financial crisis and by growing concerns about domestic fiscal policy, slowed early in the year.”

Adding to the pressures on the labor market is today’s news that U.S. employers announced plans this month for the most layoffs since last September, according to Challenger, Gray & Christmas. A large slice of May layoff plans is tied to Hewlett-Packard’s announcement of its anticipated workforce cuts, which comprised 43% of the total layoffs announced this month.
The Hewlett-Packard decision may have temporarily skewed the layoffs trend upward, but today’s ADP report implies that tomorrow’s payrolls update from the government for May will show some improvement over April’s sluggish growth, which was the weakest since August 2011. The consensus forecast calls for something better for May for the private-sector’s payrolls: a gain of 168,000 vs. 130,000 in April, according to
“Businesses are adding workers at a pace that is not very impressive,” says David Sloan, a senior economist at 4Cast Inc. “The unemployment rate is not going to fall rapidly. The numbers are consistent with an economy that is growing modestly.”
“[Today’s ADP employment news is] a little light, but I don’t think anyone will be very surprised,” advises Wayne Kaufmann, chief market analyst at John Thomas Financial. “Recent data hasn’t been great, and while this isn’t a horrible number, it shows we’re in a lackluster period in the economy right now. Hopefully the recent negative trends will reverse themselves, but it is hard to see what will cause that.”