The Employment Situation in May – Better Than You Think

A strong jobs report for May adds strength to the argument that the weakness in March was an aberration. The Bureau of Labor Statistics (BLS) reported that payroll employment expanded by 280 thousand in May. Job gains in March were revised upward by 34 thousand to 119 thousand and April was revised downward 2 thousand to 221 thousand. The unemployment rate ticked up to 5.5% in May from 5.4% in April.

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The best news in the report is the uptick in the unemployment rate. This is actually a strengthening rather than weakening of the labor market. After rising to 5.7% in January the unemployment rate declined to 5.5% in February and has moved back and forth between 5.4% and 5.5% since. The increases in the unemployment rate in January and May were based on strong job gains but stronger gains in the labor force. The decline in April combined respectable growth in both jobs and the labor force. The decline in February and no change in March were based on weak job gains coupled with declines in the labor force.

The labor market and the broader economy would benefit more from a rebound in the labor force participation rate, which has hovered below 63% for most of the period since leveling off in late 2013, than further declines in the unemployment rate. At 5.5% the unemployment rate is at or near what some economists consider a normal level, consistent with a dynamic labor force and job switching, rather than sustained unemployment. Luring back some of the nearly 2 million workers who have dropped out of the labor force but are ready and willing to work would be a sign of a healthier labor market.

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