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Unemployment Dips to 16-Year Low as Job Growth Hits 80 Straight Months

The U.S. economy added 138,000 new nonfarm jobs in May, driving the unemployment rate down to 4.3% – the lowest rate since May 2001 – according to the U.S. Department of Labor, Bureau of Labor Statistics Employment Situation report issued June 2 (Exhibit 1).people working

The unemployment rate dropped 0.1% from the previous month (Exhibit 2). It has dropped 0.5% since January while the number of unemployed has fallen by 774,000 this year. May was the 80th consecutive month of job growth.

Although the number of new jobs added in May was lower than expected, we would question the reliability of the numbers based on some other related factors. According to the report, the drop in unemployment was driven primarily by people leaving the labor force.

      1Both employed and unemployed numbers declined for the month as 429,000 people reportedly left the labor force. That's a particularly large exodus, which we suspect may be due to a wide margin of error in the survey estimates.

By contrast, ADP Corp., which does its own monthly employment survey, estimated that U.S. private employers added 253,000 jobs in May. That is well above expectations and nearly twice the number reported by the U.S. Department of Labor, according to the ADP National Employment Report issued June 1.

      2A total of about 1.92 million Americans are collecting unemployment benefits, which is the lowest level since 1974, according to the U.S. Department of Labor weekly claims report issued May 27. There were 248,000 jobless claims filed in the final week of May, marking 117 consecutive weeks of claims under 300,000 – the longest stretch since 1970 (Exhibit 3).

Here are some of the other key trends highlighted in the report: 

  • Average hourly earnings for all employees on private nonfarm payrolls rose by just $0.04 to $26.22 (Exhibit 4). Year-over-year, average hourly wages have risen by $0.63, or 2.5%.
  • The number of unemployed persons looking for jobs continued to edge down from 7.1 million to 6.9 million for the month.exhibit 4
  • The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged over the month at 1.7 million and accounted for 24% of the unemployed (Exhibit 5). Year-over-year, the number of long-term unemployed was down by 433,000, but still remains at an elevated level.
  • The number of persons employed part time for economic reasons declined slightly to 5.2 million in May (Exhibit 6).
  • exhibit
      4The labor force participation rate declined by 0.2 percentage points to 62.7%, while the employment-population ratio edged down 0.2% in May to 60.0%.
  • The labor force participation rate for those in their prime working years (age 25 to 54) dropped slightly to 81.5% from 81.7% in April (Exhibit 7). That is about 1.5% below the prerecession level, and continues to be a concern.
  • The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in May (Exhibit 8).

      5Strong job growth has been one of the key elements of the improving economy, and will be a consideration in the Federal Reserve Board's decision on whether or not to raise rates an additional 0.25% when the board meets June 13 and 14.

We believe that a series of small rate hikes during the year would be beneficial to net savers without materially affecting the economy or consumer spending.

exhibits 6, 7, and 8

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