Hiring Slowed in May as the Jobless Rate Ticked Up to 9.1%

By Daniel Indiviglio

The U.S. economy added just 54,000 workers, the fewest since September. Is the news as bad as it looks?

590 job seekers REUTERS Lucy Nicholson.jpg

The already slow U.S. economic recovery has definitely hit a bump: hiring pulled back in May. After growth appeared to have weakened in April, firms responded by slowing their pace of hiring. Just 54,000 jobs were added in May, according to the Bureau of Labor Statistics. The weak hiring paired with more workers entering the workforce caused the unemployment rate to bump up to 9.1%. How bad is this report?

Why the Rate Stepped Up to 9.1%

First, here's the unemployment rate chart from BLS, to provide some historical perspective:

unemp 2011-05 cht1.png

At 9.1%, the unemployment rate is now the highest this year. But there's a silver lining here. The unemployment rate didn't actually rise because more workers were laid off. Instead, more Americans who had given up on finding a job entered the labor market. During the month, the size of the workforce rose by 272,000 workers, while the civilian population only increased by 167,000 workers. In other words, 105,000 workers who had exited the labor force in the past re-entered.

The problem, however, is that there weren't enough jobs to accommodate all those people. As a result, the number of unemployed Americans increased and so did the rate.

Still, it's good to see more Americans trying to find jobs. As you might expect, this means fewer workers were classified as discouraged or otherwise marginally attached:

unemp 2011-05 discouraged.png

This data is not seasonally adjusted, so it's difficult to compare it apples to apples with the other numbers cited throughout this post, all of which are seasonally adjusted. But it's important to watch how this number changes. In May it was the lowest since June 2009.

During the month we also saw one broader measure of unemployment, the total number of people who want a job but can't find one (including, but not limited to, those technically unemployed) decline by 145,000:

unemp 2011-05 want.png

That number still stands at 20.1 million, however. Additionally, the very broadest measure of unemployment, those workers unemployed, discouraged, marginally attached, and working part time for economic reasons, actually declined slightly in May. "U-6" fell to 15.8% from 15.9% in April.

One troubling change during the month was the increase in the number of long-term unemployed Americans. Here's a chart showing unemployment duration:

unemp 2011-05 duration.png

Although the earlier three periods of unemployment were basically flat, the number of people jobless for 27 weeks or more increased by 361,000.

How Weak Is 54,000 Jobs Added?

Here's how the number of non-farm jobs have changed over the past few years:

unemp 2011-05 cht2.png

Yes, May looks pretty ugly in this context. Its 54,000 jobs added were the fewest since September, when jobs were declining due to temporary Census workers being laid off. Since that effect skews the numbers, it's helpful to look at just private sector hiring:

unemp 2011-05 private.png

This isn't pretty either. The result here is a little better than the headline number, with 83,000 new jobs. But that's still the fewest since June 2010. In fact, it's the third fewest since we began to see net jobs rise in March 2010.

On a sector-by-sector basis, the job gains were generally small. After all, few jobs were added overall.

unemp 2011-05 sectors.png

Take a look at business and professional services. Its 44,000 job gains were actually pretty good. You might think that during a weak month this would be due in large part to additional temporary hires. Instead, however, temporary hiring declined by 1,200 workers in May. This is actually a pretty good sign, as it implies that the firms that are hiring are more focused on permanent hires.

As for the other sectors, health care remains strong. The rest shown above all had relatively small gains or losses, with the exception of government. It continues to shed jobs. Local education, in particular, continues to suffer with 17,500 jobs lost during the month.

Ultimately, this report is disappointing, but not unexpected. The economy has been clearly weakening since April. This is likely due in large part to gas and food prices rising, but several other factors have also hurt sentiment. As a result, firms aren't hiring as aggressively, fearing that consumer demand won't be strong enough to warrant many new workers.

The month's 54,000 jobs added aren't enough to keep the unemployment rate steady as the labor market grows at its natural pace. But in May we actually saw workers who had been sitting out restart their job hunt. While this is a positive sign, if hiring remains weak, then the unemployment rate will slowly tick up in the months to come.

Image Credit: REUTERS/Lucy Nicholson

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