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HFF Analysis of the May 2017 BLS Employment Report

Friday, June 02, 2017

HFF is pleased to report on the latest employment expansion statistics from May 2017. Our research team analyzes trends and data to give readers a better view into the current state of the economy and how employment is being affected.

Employment Expansion

U.S. job growth slowed in May as nonfarm payrolls rose 138,000 and job gains in the prior two months were revised down a net 66,000. The unemployment rate fell to 4.3 percent, the lowest level since May 2001. The drop in unemployment suggest that the labor market is at or very near full employment.

Payroll creation has averaged 198,000 since October 2010, marking the 80th month of consecutive growth. The Underemployment Rate stayed at 8.6 percent in May, the lowest level since December 2007, offering more evidence the labor market is tightening. Despite the disappointment, it is still expected that the Fed will lift rates later this month.

The downside surprise to May payrolls, along with the downtick in the Unemployment Rate, can be due to a calendar-related bias. The reason is capturing the seasonality of the data in a month wherein a large number of college students and recent college graduates enter the labor market. The volume of these potential workers and timing can vary considerably based on the reference period. Therefore, the payrolls not captured in May will likely provide a modest boost to payrolls in June.

Average Payroll Creation Slowing

The current expansion cycle is similar to 1991 to 2000 and greater than the 2004 to 2007 expansionary period, but only after a significantly delayed recapture of the nation’s previous employment peak.

Average Payroll creation since October 2010

Attractive Job Growth Cooling

The U.S. created 2.16 million jobs in 2016, the smallest gain for a calendar year since 2011. The last six years’ job growth is on par with the expansionary period from 1992 to 1995.

Annual Employment Growth

In 2016, the U.S. created 2.16 million jobs. But nearly 32 percent of private-sector job gains came from construction, manufacturing, retailers, hotels, restaurants and temporary help agencies, all typically low-paying sectors. Combined, Retail Trade (36,000) and Leisure and Hospitality (331,000) created approximately 367,000 jobs in the year ending May 2017, accounting for some 16 percent of the headline growth nationwide. Retail Trade accounts for 23 percent of the headline Trade, Transportation and Utilities growth. We can therefore assume continued broad-based growth in the retail and industrial property types as we progress deeper into the economic recovery. Professional Business Services, the industry sector most closely aligned with office using employment, experienced expansion of 622,000 jobs in the year ending May 2017, the highest of any major employment sector.

Fortunately, Temporary Staffing only accounted for 141,000 (approximately 23 percent) of these positions. Temporary Staffing is slowing, however,implying hesitance in hiring the lowest cost employees companies can find in tentative expansions.

Education and Health Services, which has performed well throughout the downturn being a recession-resistant industry, expanded by 525,000 jobs in the year ending May 2017. Mining and Logging continues to undermine headline growth but continued to grow positive this month with approximately 32,000 jobs being added in the year ending May 2017.

BLS jobs report YOY change

Unemployment Rate

The Underemployment Rate augments the Unemployment Rate to include anyone marginally attached to the labor force that is either not employed or employed only part time. Fortunately, the Underemployment Rate has descending from a recent high of just over 17 percent. However, the spread between the two rates is near an all-time high and shows no sign of rapid compression. The Unemployment Rate dropped down to 4.3 percent in May, the lowest level since May 2001. The Underemployment Rate dropped to 8.4 percent in May, the lowest level since July 2007, offering more evidence the labor market is tightening.

U.S. unemployment rate May 2017

Wage Growth

As the labor force approaches “full employment,” much attention has been cast to wage growth. The past three recessions were preceded by a period of FOMC tightening. Average hourly earnings growth exceeded four percent in each of these periods as overall economic activity became reflected in strong wage growth. With the current year-over-year percent wage growth registering approximately 2.5 percent, one could argue overall economic activity has not yet reached levels that precede recessionary periods (often accompanied if not triggered by FOMC tightening to counter inflationary forces).

May 2017 jobs report wage growth

Sources: Sources: HFF Research, Bureau of Labor Statistics, Department of Labor, Bloomberg

Prepared by Morgan Allen, HFF Research Analyst, and Jimmy Hinton, HFF Managing Director of Research





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