May jobs report: Strong jobs gains across industries, with modest wage growth

Jun 1, 2018, 14:30 PM by Nikhil Mohan
  • Headline: U.S. employment rose by 223,000 jobs in May, beating consensus expectations of 190,000 jobs and continuing the longest streak of job growth on record. May’s strong gain was higher than the average monthly jobs gain of 191,000 over the past 12 months and lowered the unemployment rate to an 18-year low of 3.8%. Average hourly earnings rose 0.3%, or 8 cents month-on-month, versus a forecast of 0.2% growth. Wages were up 2.7% for the year in May, marginally higher than the 2.6% posted in April. Revisions to March and April jobs numbers resulted in a net gain of 15,000 jobs. The labor force participation rate was largely unchanged at 62.7%.
  • Executive Summary: After modest economic growth in Q1, May’s jobs report might signal that the U.S. economy is back on the move despite geopolitical and trade tensions. Other recent signs of strength include solid personal income and spending data. Outsized jobs gains in retail, construction and manufacturing suggest that the economy is firing on all cylinders. While wage growth also beat expectations in May, it remains well below historic trends: Average hourly earnings were rising roughly 4% year-over-year in 2000, when unemployment was as low as it is today. Although financial markets have been jittery lately over trade tensions and political unrest in Italy, with the 10-year Treasury yield dipping below 2.8% on May 29, stronger jobs numbers have pushed the yield back above 2.9%, while the dollar index has gained 0.2% as of today.
  • Wage Inflation: Although wage growth rose to 2.7% year-over-year in May, it still is not commensurate with the current level of unemployment. The popular consensus remains that with the labor market continuing to tighten, stronger wage growth is right around the corner. In what may be one of the earliest signs of an acceleration in wages, the Federal Reserve Bank of Atlanta reports that workers who switched jobs received annual pay increases averaging 4% in April, compared with average gains of 2.9% for those who did not change jobs. Overall, May’s jobs number, robust consumption and the pick-up in wages, albeit sluggish, should keep the Fed on track to raise interest rates this month, with at least one more increase later this year.
  • Job Growth Outlook: While recent tax reform is expected to increase the budget deficit, thus placing further upward pressure on interest rates, it likely will provide a boost to the job market, potentially extending the current cycle. Nevertheless, gains will likely be modest given that the economy is operating at near-full capacity. While financial market volatility has risen slightly, a trade dispute over metal products between the U.S., Europe, Canada, Mexico and China has the potential to disrupt employment in steel-consuming industries, which constitute a larger proportion of the workforce than steel-producing industries.
  • CRE Sector Employment:
    • Construction: The construction sector added 25,000 jobs in May, up from a 21,000 gain in April. Much of May’s increase was from specialty trade contractors, who added 20,500 jobs, with non-residential specialty accounting for 14,800 jobs. Meanwhile, employment in residential building rose by 4,600 jobs.
    • Industrial: Manufacturing continued to expand, adding 18,000 jobs in May. Much of the gain was in the durable goods sector (15,000), with machinery adding 5,800 jobs. The transportation and warehousing sector added 18,700 jobs, with couriers and messengers adding 4,800 jobs and warehousing and storage adding 6,600 jobs.
    • Retail: Retail employment added 31,000, with general merchandise stores adding 13,000 jobs and building material stores adding 6,000. Retail has added 125,000 jobs over the past 12 months.
    • Office: Professional and business services continued to trend up in May, adding 31,000 jobs, with professional and technical services accounting for the bulk of that gain (22,600). The sector has added 483,000 jobs over the year.


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