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May Employment Preview


by Calculated Risk on 6/02/2022 12:34:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for May. The consensus is for 320,000 jobs added, and for the unemployment rate to decline to 3.5%.There were 428,000 jobs added in April, and the unemployment rate was at 3.6%.Click on graph for larger image.

o First, currently there are still about 1.2 million fewer jobs than in February 2020 (the month before the pandemic).

This graph shows the job losses from the start of the employment recession, in percentage terms.

The current employment recession was by far the worst recession since WWII in percentage terms. However, the current employment recession, 26 months after the onset, has recovered quicker than the previous two recessions.

o ADP Report: The ADP employment report showed a gain of 128,000 private sector jobs, well below the consensus estimates of 280,000 jobs added. The ADP report hasn’t been very useful in predicting the BLS report, but this suggests a weaker than expected BLS report.

o ISM Surveys: Note that the ISM services are diffusion indexes based on the number of firms hiring (not the number of hires). The ISM(R) manufacturing employment index decreased in May to 49.6%, down from 50.9% last month. This would suggest 20,000 jobs lost in manufacturing. ADP showed 22,000 manufacturing jobs added.

The ISM(R) Services employment index for May will be released tomorrow.

o Unemployment Claims: The weekly claims report showed an increase in the number of initial unemployment claims during the reference week (includes the 12th of the month) from 185,000 in April to 218,000 in May. This would usually suggest a few more layoffs in May than in April. In general, weekly claims were close to expectations in May.

o Permanent Job Losers: Something to watch in the employment report will be “Permanent job losers”. This graph shows permanent job losers as a percent of the pre-recession peak in employment through the April report.

This data is only available back to 1994, so there is only data for three recessions. In April, the number of permanent job losers decreased to 1.386 million from 1.392 million in the previous month.

These jobs will likely be the hardest to recover, so it is a positive that the number of permanent job losers is declining fairly rapidly.
o COVID: As far as the pandemic, the number of daily cases during the reference week in May was around 90,000, up triple the 30,000 in April. This is a possible negative for the May report.
o Conclusion: The consensus is for job growth to slow to 320,000 jobs added in May. Overall, the ADP report was below expectations, the ISM manufacturing employment was negative, and unemployment claims increased during the reference week. This suggests a weaker than expected employment report for May.

: The Federal Reserve is shrinking its balance sheet under duress, which makes a soft landing nearly impossible

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