US: Softening labour market – Deutsche Bank

The research team at Deutsche Bank suggests that the data revealed headline growth of just 138k for May which compared to the consensus estimate of 182k, while there was a further net 66k of downward revisions to the prior two months also made.

Key Quotes

“It means that over the last three months the average increase in nonfarm payrolls is just 121k, down from as high as 201k in February. The current three-month moving average is also at the lowest reading since July 2012. The difference now however is that the unemployment rate is much lower with the rate down to just 4.3% in May (from 4.4% in April) and the lowest since May 2001. The move lower last month was partly helped by a two-tenths decline in the participation rate to 62.7% however it’s worth noting that this rate has largely stayed in a 62.5-63.0% range for 20 months now despite some month to month volatility. So while a disappointing headline payrolls figure, it does possibly reflect the struggle to hire as we get closer to full employment.”

“As our US economists also note, there simply is not enough excess slack left in the labour market to produce the sort of job gains that we have experienced in the past so employment growth is poised to slow further going forward.”

“To that point, the Dallas Fed’s Kaplan said following the employment report that “there are dramatically more skilled job openings in the US than there are workers” and that “while there is slack, it is dwindling”. It’s worth also noting that the other important element of the employment report – wages growth – was a bit soft in May. While average hourly earnings rose +0.2% mom and matching expectations, April was revised down a tenth and the annual rate held steady at +2.5% yoy versus expectations for a one-tenth rise to +2.6%.”