EmailTotal nonfarm payrolls increased by 54,000 in May, down from 232,000 in April. This is the smallest amount of new payroll gains since the Census hires skewed the data last fall. The Briefing.com consensus expected payroll gains of 169,000.
Private payrolls increased by 83,000 in May. This was the private sector's lowest increase since June 2010 and well below the consensus expectation of 180,000 new jobs.
For the past month, the underlying fundamentals regarding the labor recovery have shown signs of stress. Most economists, including us, discounted poor initial claims readings as normal volatility following seasonal adjustment problems. This obviously was not simple volatility and was a definite precursor toward labor weakness.
The poor payrolls data were consistent with the recent rise in the unemployment rate. Last month, the unemployment rate increased from 8.8% in March to 9.0% in April. The increase was due to more workers being laid off and not from discouraged workers returning to the labor force. This was at odds with the April payroll gains.
At the time, we stated that, when the unemployment rate typically diverges from the payroll numbers, they tend to converge within a month or two. We had hoped that the discrepancies between the payrolls and unemployment data would result in the unemployment rate falling back to March levels. Instead, it turned out that the correction occurred on the payroll side as job growth decelerated noticeably in May.
The unemployment rate increased to 9.1% in May, above the consensus expectation of 9.0%.
That is not to say that the entire jobs report was bad or that the recovery has stalled. One month of softening does not automatically suggest the economy is reverting to a weaker growth path.
In fact, income growth remained remarkably strong for the lack of payroll growth. Average hourly earnings increased 0.3% in May, up from 0.1% in April. Total earnings -- aggregate weekly hours times hourly earnings -- also increased 0.3%. This is enough to keep consumption growth stable in May.
