The May nonfarm payrolls were highly anticipated for a couple of reasons. For one, there is increased chatter about the Federal Reserve starting the process of tapering asset purchases especially given increasing inflationary pressures. A strong figure above a million jobs added would increase the odds and expedite the timeline. The second factor is that in April, we had an underwhelming report with only 266,000 jobs added. So, this report would confirm whether the labor market's momentum is slowing or that was a one-time blip.
So by some measures, the Labor Department's report that in May employers added 559,000 jobs were kind of a "Goldilocks" number which confirmed that the economy's recovery remains on track, but it's not strong enough to cause the Fed to accelerate its timetable for tapering asset purchases. Thus, it's not surprising that the S&P 500 (NYSE: SPY) was up nearly 1% and closed a couple of points off its all-time highs.
However, the figure did fall short of expectations of 650,000 jobs with some expecting an even stronger figure as the ADP survey of private payrolls was consistent with a reading of more than a million jobs added. April's job numbers were also slightly revised higher by 12,000 to 278,000.
Many pointed to the extended and enhanced unemployment benefits as being behind the slow recovery in employment figures. This recovery seems to be marked by strong demand and supply shortages, so it's not surprising that this dynamic is appearing in the labor market as well.
Overall, the unemployment rate declined by 0.3% to 5.8% which was its lowest reading since March 2020. Overall, the U.S. economy remains short about 7.6 million jobs from its pre-pandemic levels. The biggest contributor to employment was the leisure and hospitality sector which added 292,000 workers as restrictions are relaxed and more people are traveling with increasing vaccinations and falling case count numbers. Overall, this part of the economy remains about 2.5 million jobs short of pre-pandemic levels.
There were also strong gains in public and private education with a total of 144,000 jobs added. Other gainers were healthcare and social assistance, information technology, manufacturing, warehouses, and transportation.
Many are speculating that older workers have chosen to retire and may never reenter the workforce. The labor force participation rate is at 61.6% which is below the 64% pre-pandemic level. Average hourly earnings increased by $0.15 to $30.33 which is another indication that a tight labor market is leading to higher wages.
While the report did fall short of expectations, it's still positive and relieves concerns from April that the recovery is losing steam. Instead, it seems that job growth should continue along with the economy returning to normal and the enhanced and extended benefits being phased out.