The Employment Situation report from the Bureau of Labor Statistics, known as the jobs report, was weaker than expected for May. Nonfarm payrolls added just 138,000 new jobs for the month, below the consensus expectations of 178,000. Excluding the loss of 9,000 workers from government payrolls, the private sector added just 147,000 for May. That is well below the average of 179,000 new jobs added per month over the past year. The slowdown in job creation was widespread across most industries.
There are two competing theories on the cause of the slowdown: the United States is running out of workers, or the economy is slowing down. Those two explanations have dramatically different implications for the economic outlook.
The unemployment rate fell to 4.3 percent for May, the lowest level since 2001. That rate implies 6.8 million unemployed people. There are also 21 million workers in part-time jobs who would like full-time employment and 1.5 million discouraged workers who would like a job but haven’t looked for work in the past month. At the same time, employers say they have about 5.7 million open jobs. One explanation is that geographic and skills mismatch are preventing employers from filling the open positions and the unemployed from finding work. If employers are having trouble finding qualified workers, then the likely course is for upward pressure on wages as employers must lure qualified workers away from other jobs. In that scenario, the slowing growth in jobs is less of a threat to the economic expansion because rising wages should offset the slower payroll increases and help keep aggregate income rising.
If employers have made a strategic decision to slow hiring because of doubts about the future, that could signal a potential threat to the economic expansion. Under that scenario, wages won’t get bid up as quickly, and, when combined with slower jobs gains, could restrain aggregate income growth and future consumer spending. It would also be logical that employers might also begin to slow capital investment if they believed demand might soften in the future.
In an economy as large and diverse as the United States, the reality is likely to be that both explanations are partially true. Some industries such as professional and business services, health care and education, and some areas of manufacturing and construction may be struggling to find qualified workers, resulting in slower jobs growth, while industries such as retail and information (including publishing and communication industries) slow hiring or reduce payrolls due to secular shifts in their industries.
The May jobs report reflects the dynamism in the economy. Some industries are doing well but facing the curse of too much success as the pool of qualified workers dwindles, while other industries are reacting to disruptive technologies and heated competition. In the long run, the economy will be stronger and more efficient. In the short run, the weak jobs report is unlikely to be signaling a serious threat to the economic expansion.