The economy once again created new jobs during May, to the tune of 175,000 additional jobs added throughout the month. Factoring in the modest downward revisions to prior estimates, the overall change in nonfarm payrolls was in line with expectations. The country’s unemployment rate ticked fractionally higher to 7.6%, as the labor force expanded at a pace that outstripped job growth.
The May uptick notwithstanding, the gradual downward trend in the headline jobless rate belies the magnitude of the issue. A much larger number of workers are still struggling to find full-time employment, settling on part-time work to make ends meet. That broader measure of joblessness (the so-called U-6 number) ticked fractionally lower, but remains elevated at 13.8%.
That point is further illustrated by the fact that the average workweek has been in decline in recent months, as many of the newly created jobs have been part-time in nature. Declining hours have also had a negative impact on weekly wages. Wage growth, particularly when adjusted for inflation, has been weak, and there’s little reason to believe that it will accelerate any time soon given the persistent slack in the economy.
Despite the angst that it caused earlier this year, federal spending cuts associated with the sequester have yet to exert their full impact. Government payrolls fell again in May, but to a very limited degree. Most economists expect those cuts to increase in the months ahead, placing the onus for continued job creation squarely on the shoulders of the private sector.
The Fed has communicated that it will maintain its accommodative monetary policy stance until the jobless rate dips below 6.5% or inflationary pressures rise meaningfully. While much recent attention has been devoted to the repeal of the Fed’s bond-buying program, current unemployment levels and subdued inflationary pressures suggest that central bankers are not feeling any meaningful pressure from economic forces to deviate from their current path.
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