Employment Report: 339K Jobs Added in May

The employment report for May showed a 339,000 increase in total nonfarm payrolls. The addition is well above expectations of 180,000 new obs. Meanwhile, the unemployment rate increased to 3.7%.

Here is an excerpt from the Employment Situation Summary released this morning by the Bureau of Labor Statistics:

Total nonfarm payroll employment increased by 339,000 in May, and the unemployment rate rose by 0.3 percentage point to 3.7 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, government, health care, construction, transportation and warehousing, and social assistance.

Here is a snapshot of the monthly change in nonfarm employment since 2000 with a callout to the last 12 months.

PAYEMS monthly change

For another view, here is the monthly percent change in nonfarm employment since 2000. We've added a 12-month moving average to highlight the long-term trend.

PAYEMS Monthly Change

The chart here shows the pattern of unemployment, recessions and the S&P composite since 1948. Unemployment is usually a lagging indicator that moves inversely with equity prices (top series in the chart). Note the increasing peaks in unemployment in 1971, 1975 and 1982. The mirror relationship repeats itself with the previous bear markets. The COVID pandemic briefly showed the same type of relationship between equities and unemployment, though the impact was temporary and irrational exuberance took over once again.

Unemployment Rate and the Market

Now let's take a look at the unemployment rate as a recession indicator or more specifically the cyclical troughs in the unemployment rate (UR) as a recession indicator. The next chart features a 12-month moving average of the UR with the troughs highlighted. As the inset table shows, the correlation between the MA troughs and recession starts is remarkably close.

Unemployment Rate and Recessions

Here's another chart to illustrate the reality of the unemployment rate - the unemployment rate divided by the labor force participation rate. We are currently at 5.8%.

The next chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. This rate has fallen significantly since its 4.4% all-time peak in April 2010. After the COVID pandemic, the rate reached as high as 2.6% but has since fallen and is now at 0.7%, unchanged from last month.

Unemployed 27+ Weeks