U.S. Jobs Growth Accelerated But Fell Short Of Expectation

#OPINIONLEADER#

 JUN 9, 2021

Jobs report falling short of expectation again.

The U.S. Bureau of Labor Statistics (BLS) reported an increase of 559,000 jobs in May, falling short of the forecast of 645,000. Once again, the Leisure & Hospitality industry is the biggest growth driver, creating 292,000 jobs with the continued easing of restrictions in some parts of the country. The continued resumption of in-person learning also led to an increase in employment in the Education industry (including both public and private) by 144,000 jobs. Also, the Health Care and Social Assistance industry continues to experience jobs growth, seeing an increase in jobs by 45,800. Unlike the services sector, the construction sector suffered a loss of 20,000 jobs in May, worsening from the loss of 5,000 jobs in April.

The market expected more from the report.

Twenty-four hours before the release of the jobs report, the ADP Research Institute released its estimate for the non-farm employment change. The institute reported an increase of 978,000 jobs in May, 50% more than the forecast of 645,000. This immediately led to the high expectation from the market that a strong job growth is underway and that April’s disappointing report can be pardoned. As a result, the U.S. dollar strengthened across the board.

However, little did the market know that a jobs report that fell short of expectation was waiting for them last Friday. Even though May’s figure is double that of April’s, it was not impactful since doubling a small figure does not lead to a much bigger one. Also, a slight upward revision in April’s figure did not provide a tad bit of help. Hence, there was a strong sell-off in the U.S. dollar.

So, what stymied the jobs report?

Both the IHS Markit and the Institute of Supply Management (ISM) reported an increase in the pace of expansion of the services and the manufacturing sector in May. However, both organisations also reported a slowdown in jobs creation as firms are faced with the difficulty of filling their job vacancies with suitable candidates. Furthermore, firms also reported the challenges of enticing workers back to employment, which likely explains the higher-than-expected increase in average hourly earnings in May as employers raise wages in an attempt to recover the lost employment. In the construction sector, almost all of the jobs lost fall under the Specialty Trade Contractors, an area that requires specific skill sets to perform the work.

How will the Fed react to this report?

Although the job market continues to recover, it is unlikely that the recent jobs data will even nudge the Federal Reserve to kickstart a discussion on quantitative easing (QE) tapering. Bear in mind that the U.S. jobs market is still falling short from the pre-pandemic level by around 7 million jobs, which means there is still a lot of recovery that needs to be done. Fed member Mester expressed her views on the released report last Friday, saying that it was positive but insufficient to cause a change on monetary policy. She views May’s data as “progress continues to be made on the labor front” but would “like to see further progress”. The Fed will be meeting on 17 June and will also be releasing their quarterly economic projections.