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Confirming the pause, the U.S. added only 54,000 jobs in May

06/03/2011 by Alex Carrick, RCD Canadian Chief Economist

The latest monthly employment figure for the U.S. was a modest +54,000 in May, according to the Bureau of Labor Statistics.

To put this in perspective, U.S. employment over the past 20 years has increased on average by 100,000 jobs per month.

Due to some stronger months earlier this year, the total number of jobs in the U.S. has increased by 870,000 in the latest twelve months.

That’s not a great increase, but it’s not bad either, particularly when one realizes there is one underlying anomaly that has helped to distort the number.

During the past 12 months, employment by the government sector has fallen by 853,000 jobs.

But that figure overstates the public sector decline by as much as half a million. May of last year was when temporary hiring by the federal government to conduct the 2010 census was at its peak.

In stages over the next several months, those workers were set free again.

Therefore, take out government (both census- and other-related) and the private sector in the U.S. has raised employment by 1.7 million jobs in the latest 12 months. That puts a somewhat different spin on things.

The private sector has been a little more aggressive in adding jobs than it has received credit for.

Services employment alone has risen by 1.5 million positions year over year. The services’ share of total employment keeps creeping up and currently stands at 69.4%.

The main contributors to the services jobs growth year over year have been professional and business services (+520,000), education and health (+445,000) and leisure and hospitality (+202,000).

The professional and business services category includes help-wanted agencies. They’ve expanded to hire out work on a part-time basis, an especially strong segment of the labor market at this time.

Firms coming off a recession would rather not commit to full-time employment until they are absolutely sure their business is back on track with firmer prospects.

Should it become necessary, it is much easier to lay off temporary workers. They lack tenure and benefit packages.

It’s interesting to note that the employment level in the construction industry currently stands exactly where it was at this time last year, 5.529 million.

The unemployment rate in the latest month rose slightly, to 9.1% from 9.0% the month before. That’s not a confidence-builder.

Most estimates for “real” (i.e., inflation-adjusted) growth of gross domestic product in the remainder of the year are being revised down. In Q1, the increase in national output slowed to +1.8% from +3.1% in Q4 2010.

Over the next several quarters, a figure of approximately +2.0% on average seems reasonable.

Earlier this year, +3.0% or higher was the consensus.

The problems for the economy reside mainly in the transportation sector. Gasoline prices, while coming down a little from their most recent peaks, still remain high. And auto production and sales have been feeling the effects of parts shortages in the aftermath of tsunami and earthquake damage in Japan.

Another factor holding back more robust business activity has been the overall increase in costs. Headline inflation (i.e., the year-over-year performance of the all-items consumer price index) in April was +3.2%. Under such circumstances, business decision makers naturally become more cautious.

Given all these circumstances, the Federal Reserve is unlikely to alter its course much out to the end of 2011. It will roll over the bonds it purchased earlier in Quantitative Easing II and it will leave its key policy-setting interest rate – the federal funds rate – at essentially zero.

The sluggishness in the U.S. economy is a concern for Canada. The acceleration in this nation’s GDP growth – from +3.1% in Q4 10 to +3.9% in Q1 11 – is not likely to be sustainable.

U.S. employment - per cent change
(based on seasonally adjusted data)
U.S. employment - per cent change
Data Source: Payroll Survey, Bureau of Labor Statistics (U.S. Department of Labor)/Chart: Reed Construction Data - CanaData.

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