Disappointing Employment Report

The much-anticipated employment report from the Bureau of Labor Statistics (BLS) fell well short of estimates this morning: 38,000 new jobs was all the U.S. economy in the month of May. This is more than 100K shy of even the low range of analyst estimates prior to the report’s release.

This is especially a head-scratcher considering yesterday’s ADP ADP private sector employment report yesterday that saw 173K jobs in the month. This is quite a disparity — while these 2 reports often are not in lock-step in real time (future revisions usually smooth out most differentials) but when was the last time the BLS report was 3.5 times lower than the ADP?

The 38K figure is the lowest monthly jobs number since September of 2010, when jobs numbers were still wallowing in negative territory. The unemployment rate, meanwhile, has now dipped to 4.7 percent — the lowest since November ’07, a year before the Great Recession hit. This has also ratcheted down the 3-month non-farm payroll averages to 116K, and far lower than the one-year average of 219K.

Most watchers were aware the Verizon VZ strike would account for between 25K-35K fewer jobs in the month, but this 38K total remains shocking. Lest we think this may be a single-month glitch, revisions to March and April combined resulted in 59K fewer jobs, as well.

What would account for such a drop? The Verizon strike is only a small percentage of it, and does not apply to the previous months’ negative revisions. Temporary employment, Construction, Mining and Manufacturing were all down between 10K-21K for the month, while job gains were made in Healthcare (46K), Food and Drinking Establishments (22K) and Professional/Business Services (10K).

The Labor Force Participation Rate fell 0.2 percent sequentially to 62.6, and the Civil Labor Force reported down by 458K jobs. The U6 number — often referred to as “full unemployment” — was 9.7 percent. The Average Hourly Rate rose 0.2 percent, while the Average Workweek was unched at 34.4 hours.

On CNBC’s Squawk Box this morning, University of Chicago professor Austan Goolsbee suggested we may be returning to normal Productivity rates in the U.S. workforce. This would somewhat explain the drastic drop in employment as well as the March and April revisions lower.

Most importantly, what is the Fed likely to do now? There had been plenty of buzz that the Federal Reserve would raise interest rates another quarter-percent even with a less-than-stellar (sub-200K) BLS report. But with this major drop-off from expectations, the odds that Janet Yellen & Co. pushes back a rate hike decision to July (or later, depending perhaps on June BLS data) become a lot more likely.


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