The economy added 139,000 jobs in May while the unemployment rate remained unchanged at 4.2%. While one-month job gains were solid, gains for March were revised down by almost 48%. The BLS revised its numbers twice in the past two months, meaning March’s numbers were revised in April, then again in May. These downward revisions to gains for March and April indicate that the economy is slowing down.
If the trend in revisions continues for May, the job gains could ultimately be revised to around 70,000 from the 139,000 originally forecasted. This slowdown is evident from the latest ADP employment report, which showed that private employers added 39,000 jobs in May. And with some economists saying they are concerned about the quality of BLS data given the staffing cuts at the agency, the ADP job numbers will likely play a more important role in the economic analysis of the labor market moving forward given their use of actual payroll data.
The healthcare and leisure/hospitality industries experienced the largest sectoral gains at 62,000 and 48,000 respectively, accounting for 80% of total job gains. The federal government lost 22,000 jobs while all other sectors experienced minimal changes.
During May and June of this year, many of the nation’s high school and college graduates will enter the workforce. They will be forced to contend with cuts to government-sponsored employment programs, such as Job Corps and AmeriCorps. Additionally, they will also face an uphill battle finding jobs due to the unpredictable nature of rapid developments in the AI sphere.
AI is shaking up the labor market for certain industries. Due to its ability to automate routine tasks, human resources and customer service positions are particularly vulnerable to layoffs. But the threat to human jobs is much wider than that. In fact, administrative work overall is changing due to the introduction of artificial intelligence.
The information sector has been hammered by technological changes as entry-level positions have evaporated, a trend that may extend to other sectors. The information sector as a whole has contracted as many workers continue to leave the field due to AI disruptions.
Employment challenges for college graduates vary based on the type of industry they are planning to enter. While the healthcare and education sectors provide ample opportunities for new graduates, they often face a tougher time in certain scientific and technical fields. Scientific research and development (R&D) job postings on Indeed.com have declined by 18% since mid-January. Cuts to federal R&D spending will also have a sizable impact on the job outlook for recent graduates.
Graduates looking to find temporary jobs until they secure more permanent employment will also be disappointed as employers have shed 41,600 temporary positions this year so far. Due to continued industry disturbances from AI and trade war uncertainty, the unemployment rate for recent college graduates aged 22-27 rose by a full percentage point to 5.8% in March, compared to 2.7% for all college graduates.
Not only are job gains weakening, but the unemployment rate is likely worse than it appears. While it remained unchanged for May, this was due to a decrease in the labor force participation rate (LFPR) by 0.2 percentage points. In the absence of this decline, the unemployment rate would have increased to 4.6%. The decline in the LFPR might be due to workers becoming discouraged and no longer actively looking for work.
While the unemployment rate remains low, job gains will likely be revised down and soften in the coming months. As unemployment claims rise, so has the number of job openings, possibly due to so-called ghost job postings. Even though some sectors continue to steadily add jobs, others are in contraction. In short, the labor market is sending mixed signals about its future direction.
Outside of the labor market, negative economic trends can be seen elsewhere. Perhaps the biggest cautionary signal came last month via the US Treasury market. The Treasury conducts regular auctions of treasury notes, bills and bonds. On May 21st, demand for the 20-year Treasury bond was lower than expected, leading to an increase in the yield.
When demand is low for yields, the interest rate that the government must pay on the bond has to rise. Because of the looming national deficit crisis and the ongoing trade wars with other countries, investors were jittery about buying long-term government bonds. This caused US Treasuries to drop dramatically in price last month – with worrying knock-on effects on the housing market and other key determinants of overall economic health.
So far, Treasury bond yields have risen mainly for long-term bonds. However, some market participants, such as JP Morgan CEO Jamie Dimon, believe that an interruption to the bond market is likely.
Beyond the labor and bond markets, manufacturers continue to report a retraction in new orders and an increase in prices. Despite the tariffs, the latest BLS consumer price index rose only slightly, indicating that consumers have not faced price increases yet. While the May jobs report shows that the dam has not broken, it is evident that the pressure is building.
Joseph Dean is the Jr. Racial Economic Research Specialist with NCRC’s Research team.
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