Why the May Jobs Report is Better—and Worse—Than it Looks

Census hiring made last month's employment picture look pretty good, as total employment grew by 431,000. But tear off the 411,000 temporary jobs added to the federal government's payrolls for the decennial census, and the picture gets fuzzy. Private-sector employers added just a tenth of the jobs tied to the census. The Labor Department considers those 41,000 jobs to be "little" change—hardly what any economist, job seeker, or Washington lawmaker wants to see at this point in the fledgling recovery (and this close to November elections).

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The unemployment rate slid back to 9.7 percent, after rising to 9.9 percent in April. April's higher figure actually seemed to reflect a kind of optimism among those who were out of work and had given up looking during the recession, as they reentered the labor force to try again and pushed up the unemployment rate. But last month, the number of unemployed re-entrants fell by 286,000. In general, the May jobs report is more closely aligned with other job data, particularly jobless claims, which have been depicting a less rosy job market than that drawn in previous monthly employment reports.

It was bad news for construction: The construction industry was hammered by the housing bust and economic freefall, but had finally begun to add jobs in recent months. Not last month. Construction employment dropped by 35,000 jobs—enough to largely offset the gains made over the previous two months. The job losses spanned the construction sector, according to the Bureau of Labor Statistics.

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But good news for manufacturing: Manufacturing added 29,000 jobs in May. Factory jobs have jumped by 126,000 over the last five months. Joshua Shapiro, chief U.S. economist at MFR, calls the sector "red hot," noting that increasing hours in the average manufacturing workweek pushed the average workweek for all private workers up to 34.2 hours in May from 34.1 in April. "This outdistanced market expectations of no change," Shapiro says.

There were positive signs for the future: The average workweek rises because employers are giving their existing employees more hours to work to meet increasing demand. The number of temporary help services jobs jumped by 31,000 in May, bringing the total number of new temp jobs to 362,000 added since September. These signs point to stronger employment growth ahead, according to Morgan Stanley Research economists Ted Wieseman and David Greenlaw. "The payroll employment result was disappointing, but almost everything else in the report was stronger than anticipated," the economists wrote in a morning report. "The bottom line is that we continue to anticipate job gains of about 200,000 per month (ex-census) over the balance of the year."

Economists' expectations for wage growth were well surpassed last month. Average hourly earnings jumped by 7 cents, or 0.3 percent. Economists were expecting growth closer to 0.1 percent. Average hourly earnings have jumped 1.9 percent over the past 12 months. Another positive sign: The number of part-time workers who want full-time jobs or had their hours cut fell by 343,000 to 8.8 million in May.

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Last month's sluggish private-sector growth was clearly the low point of the report. "The question is whether the dip in payroll gains is simply one of the minor but inevitable hiccups we will hit on the path toward recovery or is it indicative of larger issues that could result in a double-dip recession," says John Challenger of outplacement firm Challenger, Gray & Christmas. "It may be too early to tell. The next several months should provide better clues as to the sustainability of the recovery."

What's happening in Washington: The issue of long-term joblessness continues to rankle lawmakers. Last month there were 6.8 million workers who have been out of work for six months or more—making up about 46 percent of the total unemployed. A jobs bill now in the Senate—passed by the House last week—would extend unemployment benefits yet again. Benefit extensions have been a lifeline to workers suffering extreme long-term unemployment while job creation remains sluggish (there are 5.6 unemployed workers for every opening). The National Employment Law Project estimates that 1.2 million jobless workers will lose their benefits in June, if they go without another extension.

Labor Secretary Hilda Solis said in a note this morning that the government would continue to push for programs for the unemployed: "I call on Congress to extend the unemployment insurance and COBRA subsidy provisions in the Recovery Act through the end of the year. The president has called on Congress to expand the clean energy manufacturing tax credit and to help small businesses with tax cuts and a lending fund to help them get the credit they need to create jobs."