US: A deeper dive into the May employment data – Wells Fargo

Mark Vitner, Senior Economist at Wells Fargo Securities, suggests that the latest surprisingly weak US employment report was likely significantly influenced by unusual seasonal influences, the structural shift toward e-commerce and a handful of authentically weak developments.

Key Quotes

“May’s shockingly weak employment report clearly deserves a closer look. While a softer report was expected due to the now-settled Verizon strike, the weaker jobs numbers clearly extend beyond this shock. Nonfarm payrolls added just 38,000 jobs in May and hiring for the past two months was revised down by 59,000 jobs. Job growth slowed to just a 1.0 percent annual rate over the past three months, opening the widest gap with the year-over-year percent change since June 2012. The last time we saw a gap this large was when the Fed implemented its final round of quantitative easing.

We believe the most recent deceleration is due to a confluence of factors surrounding this past winter’s unusually mild weather, the shift from traditional brick-and-mortar retailing to e-commerce and the unusually early Easter. These influences boosted employment earlier this year, which meant hiring did not pick up as much as it usually does this spring. The seasonal adjustment process suppresses actual hiring gains each spring, which sees payrolls surge as new college graduates are hired and teenagers take part-time summer jobs. On a non-seasonally adjusted basis, nonfarm employment grew by 651,000 jobs in May.

While seasonal quirks account for much of the slowing in job growth, there are some real concerns. Employment in oil & gas exploration continues to contract and manufacturers dependent on exports have seen demand fall sharply, resulting in job losses in the durable goods sector. Sluggish corporate profits have also led to cutbacks at corporate headquarters.

How much the Fed will be swayed by the latest jobs report remains to be seen. The latest Beige Book, released on Wednesday, noted labor markets have tightened and also made numerous references to the troubles businesses are having at filling job openings around the country.”