Summary: Non-farm payrolls increase in May; less than expected; previous two months’ figures revised up; jobless rate falls, participation rate down; market response: “not too good, not too bad”; not strong enough to add to speculation of Fed taper; jobs-to-population ratio inches up; underemployment rate falls closer to 10%; annual hourly pay growth resumes, employers having to “pay up”.
The US economy ceased producing jobs in net terms as infection controls began to be implemented in March 2020. The unemployment rate had been around 3.5% but that changed as job losses began to surge through March and April of 2020. The May 2020 non-farm employment report represented a turning point and subsequent months provided substantial employment gains. Changes in recent months have been more modest but mostly positive.
According to the US Bureau of Labor Statistics, the US economy created an additional 559,000 jobs in the non-farm sector in May. The increase was below the 663,000 which had been generally expected earlier in the week but double the 278,000 jobs that had been added in April after revisions. Employment figures for March and April were revised up by a total of 27,000.
The unemployment rate fell from April’s rate of 6.1% to 5.8%. The total number of unemployed decreased by 496,000 to 9.316 million while the total number of people who are either employed or looking for work decreased by 52,000 to 160.936 million. The lower number of people in the labour force led to fall in the participation rate from April’s rate of 61.7% to 61.6%.
“Not too good, not too bad, that seems to have been the market response to the non-farm payrolls numbers out of the US on Friday,” said NAB currency strategist Rodrigo Catril.
US Treasury yields fell on the day, especially at the long end. By the close of business, the 2-year bond yield had slipped 1bp to 0.15% while 10-year and 30-year yields each finished 7bps lower at 1.55% and 2.23% respectively.
Catril noted “the report was not too strong to instigate Fed tapering talk but strong enough to suggest the US labour market remains on a strong recovery path.”
One figure which is indicative of the “spare capacity” of the US employment market is the employment-to-population ratio. This ratio is simply the number of people in work divided by the total US population. It hit a cyclical-low of 58.2 in October 2010 before slowly recovering to just above 61% in late-2019. May’s reading inched up from 57.9% to 58.0%, continuing a rising trend which began in May 2020.