The Line: May Job Growth Much Higher Than Expected

Today, we are suprised yet again by a very confusing jobs report; you think I'd be used to this by now.

May Job Growth Much Higher Than Expected

That headline isn’t much of a surprise, as we’ve seen plenty of better-than-expected employment gains over the past few years. The 272,000 jobs added last month easily crushed the 190,000 Dow Jones estimate and came one month after a lower-than-expected April gain of just 165,000 jobs. So much for the slowdown in hiring we kept hearing about.

However, if we look at the entire report from the Bureau of Labor Statistics, things don’t look as rosy. Here are some other findings of the report:

• The unemployment rate rose to 4% for the first time since January, 2022. Economists had expected it to hold steady at 3.9%.

• The labor force participation rate dipped to 62.5%, so we can’t blame the uptick in the unemployment rate on more people joining the workforce.

• Wages rose faster than expected over the past year, which is bad news for the fight against inflation.

As you may remember, there are two surveys used to prepare this report: the payroll survey and the household survey. The payroll survey is used to calculate the monthly change in employment and wages, while the household survey gives us the unemployment figures.

If we look at employment data from the household survey, we get a much different picture of hiring. While the payroll survey—which is based on a much larger sample—said employment rose by 272,000 in May, the household survey showed a 408,000 loss of jobs. These surveys don’t always move in the same direction, but that’s a pretty big difference.

Another bit of concerning data from the household survey is the disparity between full-time and part-time hiring. Part-time employment rose by 286,000 in May, while full-time jobs fell by 625,000. The payroll survey doesn’t report full-time and part-time hiring separately, so we can’t make a comparison.

The two most common reasons given for the increase in part-time hiring are: companies are worried about the future and want to lower their costs by hiring part-timers, and people taking an additional job to pay the bills. The household survey did note a 9% increase in people working multiple jobs over the past year, and people working two jobs now account for 5.2% of all employed persons.

To sum up:

The payroll survey shows a strong labor market, with higher-than-expected employment and wage gains. Bad news for inflation.

The household survey shows a weaker labor market, with less hiring, rising unemployment, and an increase in people working more than one job. Better news for inflation.

I think the Fed will believe the payroll data, which decreases the chances of rate cuts in the coming months. Which scenario you want to believe is up to you, but either way, don’t let this report—or my probably too detailed analysis of it—spoil your weekend.