U.S. Job Market Suffers a Disaster

A new report on the job market in America is being called a “disaster” by several economists, as weak job growth and discouraged workers contribute to a bleaker economic outlook.

A new report on the job market in America is being called a “disaster” by several economists, as weak job growth and discouraged workers contribute to a bleaker economic outlook.

In May, the United States saw just 38,000 new jobs added, despite expectations of over 160,000 new jobs. The study by the Bureau of Labor Statistics saw a broad-based decline in jobs across sectors, and weak growth in a few sectors that contributed to the positive number. Healthcare contributed to the bulk of job growth, with 55,400 new jobs added. Almost every other sector saw a decline, with information services suffering the most, with 34,000 jobs lost.

Those Americans who are employed are seeing a hefty wage increase, as average hourly wages rose 2.5% on a year-over-year basis. However, some economists are arguing that the shift towards higher-paying healthcare jobs and a loss of lower-paid jobs in temporary support and retail could be causing average wages to inch upward.

Investor Responses

Bond markets rallied on the news, with traders betting that the weak data would force the Federal Reserve to suspend its plan on raising interest rates. The Fed has publicly spoken about the possibility of an increase to the Fed funds rate this month, which in turn would cause borrowing costs on many types of loans to go up.

That increase was predicated on a robust economy, which was partly confirmed by strong data from retail sales and the Fed’s own GDP growth estimates for the second quarter. However, this new data has caused the Fed to downgrade its GDPNow growth estimate from 2.9% to 2.5%.

The Fed has not publicly spoken about the job data. Federal Reserve Governor, Lael Brainard, gave one speech, arguing that the labor market has weakened and inflation remains too low for the Fed to raise rates. “I view the persistently low level of inflation during the recovery together with some signs of deterioration in inflation expectations as suggesting that the risks to the return of inflation to our 2 percent target over the medium term are weighted to the downside,” she said.

The stock market was muted in its response, with the S&P 500 losing about 0.3% on the news.

Analyst Responses

Several commentators, including economists and analysts at investment banks, are warning that this weak data demonstrates the persistence in America’s slow recovery. A decline in the labor force participation rate among young people, an increase in workers working part-time for economic reasons, and weak job growth broadly are seen as evidence of a job market that is not benefitting most Americans.

One investment bank wrote a note to clients calling the report a “disaster” and noting that the Federal Reserve will not be able to raise interest rates in June, and may not even raise rates in July. Futures markets have priced in less than a 5% probability of a June rate hike.