Labor Market Stumbles in May

By Lindsay Hogan, Senior Economist

Job growth slowed in May to 138,000, falling short of consensus estimates that ranged from 180,000 to 185,000 positions. Downward revisions to the prior two months totaled 66,000 jobs.

Although the three-month moving average for job gains slowed to 121,000 with the May data, down from levels above 150,000 earlier in the year, job growth remains above the threshold needed to keep up with labor force expansion. Consequently, the unemployment rate fell for the fifth consecutive month to 4.3% in May. As in April, however, the drop was largely due to the continued decline in the labor force participation rate which slipped to 62.7%, near the lowest levels since the 1970s.

The private sector added 131,000 jobs in May, with the biggest gains coming from education and healthcare (+47,000), professional and business services (+38,000), and leisure and hospitality (+31,000). Following a pause in hiring during March and April, the construction sector added 11,000 jobs in May, as gains in heavy and civil engineering (+7,200), nonresidential construction (+3,500), and residential building (+2,000) offset a minor loss in specialty trade contracting (-1,200). The public sector shed 9,000 positions in May, as losses in state (-8,000) and local (-9,000) government jobs offset the 8,000 hires by the federal government.

This employment report is the last the Federal Reserve will see before its policy meeting on June 13-14. Despite weaker-than-expected May employment figures, the Fed is unlikely to be derailed from its path to raise the federal funds rate to the range of 1.0-1.25%. At the same time, long-term interest rates have continued to stay at low levels, with the 10-year Treasury bill rate slipping to 2.3% at the end of May following 2.5% earlier this year.