By Amara Omeokwe
U.S. employers boosted hiring in May, but not enough for the labor market to keep pace with an overall economy that is heating up as the pandemic continues to ease.
Payrolls grew by 559,000 last month, the Labor Department reported Friday, up from a revised 278,000 in April. The unemployment rate fell to 5.8% in May from 6.1% the prior month.
The gains marked an uptick from April, but were lower than economists predicted and reflected businesses struggling to fill job openings as potential workers remained on the sidelines. The labor recovery has slowed from earlier in the year -- in March, the economy added 785,000 jobs -- a development economists say could extend a full labor recovery well into next year.
The jobs market stands in contrast with other areas of the economy that have rebounded more strongly. U.S. consumer spending, for example, has been near or exceeded pre-pandemic levels since the start of 2021, with outlays beginning to shift away from goods and into services as Americans resume everyday activities.
"It's a middle-of-the-road report," said Matthew Luzzetti, chief U.S. economist at Deutsche Bank, of the May numbers. "It is disappointing relative to where we were a few months ago, where we were anticipating you could see a million-plus type prints over these coming months. We have had to ratchet down our expectations about what job gains are likely to be going forward."
U.S. stocks rose after the data release, while the yield on the U.S. 10-year Treasury fell, as markets bet the labor market improvement wasn't strong enough to change the Federal Reserve's course on its easy-money policies.
Fed officials at an upcoming June meeting are on track to begin informal internal discussions about reducing the pace of its large bond-buying programs, though a concrete plan for winding down the purchases isn't imminent. Many officials have said they want to see more data on inflation and the labor market before adopting a clear timeline and execution strategy.
Job gains in May were led by leisure and hospitality, which added 292,000 jobs. Those increases came as state and local governments further eased pandemic-related restrictions on business activity and Covid-19 infections declined as more people received vaccinations. Payrolls also rose in education and healthcare, the Labor Department said.
Manufacturing employment rose, driven mostly by job gains in the autos sector, a sign that ongoing supply chain disruptions in the industry somewhat eased last month.
A record level of job openings in the U.S. suggests businesses are having difficulty filling positions. Economists have pointed to a variety of factors that could be contributing to constrained job growth. Those issues include some workers' concerns about contracting the coronavirus, child-care responsibilities preventing some parents from returning to work, and a $300-a-week federal supplement for recipients of unemployment benefits.
Meanwhile, supply constraints appeared to still be weighing on jobs growth for industries such as construction, where employment fell in May for the second straight month, amid materials shortages.
The Fed is closely monitoring the pace of hiring as an indicator of strength in the overall economy as it begins to assess when to review policies put in place to support the economy during the pandemic. Policy makers, meanwhile, are debating whether existing pandemic-related programs are keeping workers on the sidelines and looking at new programs to draw people back to work.
The overall faster uptick in hiring in May came as several factors are propelling a burst of economic activity. More Americans have become vaccinated against the coronavirus, and state and local governments have eased restrictions on businesses as Covid-19 cases have declined and as the federal government has relaxed its pandemic guidance. Those factors, along with federal pandemic aid, have prompted a pickup in spending, particularly at services businesses, which in turn is stoking labor demand.
Still, about 9.3 million people were unemployed and potentially available to work in May, while employment was still down by about 7.6 million jobs compared with pre-pandemic levels. At the pace of last month's job gains, it would take more than a year for U.S. employment to return February 2020 levels.
"There is therefore a material disconnect between the pace of improvement in economic activity and the labor market, which is on a far more gradual healing path," Mr. Luzzetti said.
The unemployment rate fell because more Americans who were searching for work found jobs, but the number of people in the labor force held nearly steady, suggesting that ample open jobs and some improvement in wages didn't draw more workers off the sidelines in May.
The labor-force participation rate, the share of adults working or looking for work, edged slightly lower in May to 61.6%, down from 63.3% in February 2020.
The trend in the labor-force participation rate indicates that there is still a lot of slack in the labor market, said Aneta Markowska, chief financial economist at Jefferies. "It's just going to take time for supply and demand to meet in the middle, but there is demand for labor," she said.
Average hourly pay for private-sector employees increased by 15 cents to $30.33 in May. Hourly wages rose 2% from a year earlier, though gains in wages for leisure and hospitality workers, including those at restaurants, were up close to 4% over the year. Still the average hourly wage for leisure and hospitality jobs last month was $18.09, well below the overall average for private-sector workers.
The unemployment rate for teens fell sharply to 9.6% in May, the lowest rate on records extending back to 1953, while the share of teens who work rose to 33.2%, the highest rate since 2008. That could signal labor market conditions are benefiting younger workers who may be more willing to accept lower-wage jobs.
Nearly half of small-business owners reported having unfilled job openings in May, according to a survey from the National Federation of Independent Business. Meanwhile, the number of employee shifts worked between mid-April and mid-May increased by 0.1%, according to an analysis from the workplace-software firm Ultimate Kronos Group. That compares with a 0.3% drop between mid-March and mid-April.
Carol Galle, chief executive of Special D Events in Detroit, said she recently started efforts to recruit two or three new workers for her events-planning business. Activity dried up at the company last year as conferences, trade shows and other events were canceled because of the pandemic. Ms. Galle said inquiries for her company's services have picked up again with the economy's reopening.
Ms. Galle said she has found it challenging to hire currently because many events professionals moved on to other forms of work during last year's economic downturn. Other potential workers, she said, are requesting higher pay compared with before the pandemic because the work has become more challenging. For instance, planners must coordinate virtual events that are technically complex or events that have both virtual and in-person components.
"People in my industry understand that the job has changed and they need to have additional skills and they want to be compensated," Ms. Galle said. "They're worth it. It's just a matter of being able to still run my business profitably and pay people what they're worth."
Employment in hard-hit sectors such as leisure and hospitality stand to gain as more Americans are vaccinated and the effects of relaxed federal pandemic guidelines take hold.
The Centers for Disease Control and Prevention in mid-May -- during the same week when the employment report's survey period closed -- said vaccinated Americans no longer need to wear masks or socially distance in most settings. Sixty-three percent of U.S. adults have received at least one Covid-19 vaccination, according to the CDC, contributing to the resumption of such activities as travel and dining out.
Meanwhile, hiring constraints are likely to ease in coming months as additional Americans become vaccinated, schools more fully open and the federal supplement ends broadly in September, says Nick Bunker, economic research director for North America at the jobs site Indeed. Taking those factors together, the labor market could reach an inflection point in early fall because more workers will likely be available, Mr. Bunker said.
"It's a bit like a rocket where takeoff has been slightly delayed, but takeoff will still happen," he said.
A number of U.S. states, all with Republican governors, have said they would end the federal supplement to unemployment benefits earlier than the scheduled expiration. Some of those states are also offering incentives for people to return to the workforce.
Preliminary findings from the Federal Reserve Bank of San Francisco suggest the extra benefits had a small but noticeable effect on job decisions.
Becky Frankiewicz, president of the staffing company ManpowerGroup, said employers are using creative strategies to compete for new workers and retain existing ones. She said some of Manpower's clients are offering $1,000 signing bonuses to workers who agree to start jobs the following day, while others are promising raises to employees who maintain perfect attendance for a certain amount of time.
"There are so many options as demand picks up," Ms. Frankiewicz said. "Employees are acting like consumers in how they're consuming work."
Despite the overall pickup in the economy, there are emerging signs of an uneven recovery for groups including African-Americans and women, said Michelle Holder, associate professor of economics at John Jay College.
(MORE TO FOLLOW) Dow Jones Newswires