The employment release for May has raised concern, and rightly so, amongst policymakers. Figure 1 shows that nonfarm payroll employment growth has tailed off to 0.6% m/m, and 0.9% on a three month basis (both annualized, in log differences). Other labor indicators from the household survey are slightly more positive.
Figure 1: Log nonfarm payroll employment (blue), and log civilian employment adjusted to NFP concept (red), both s.a. NBER defined recession dates shaded gray. Source: BLS via FRED, BLS, NBER and author’s calculations.
Figure 1 also presents the household series employment series adjusted to conform to the nonfarm payroll concept. Note that it is both higher in level, and in m/m growth (at 3.6% in May). However, this series exhibits greater volatility due to its smaller survey size, so it’s useful to note that the 3 month growth rate is
-1.5%. Over the past year, the adjusted series has grown 1.7%, compared to 1.3% for the official NFP series. The establishment series will be benchmark-revised in the January release, while the household research series will be revised when new population controls are incorporated.
I tend to focus on the establishment series because the sample is larger. However, the household survey does provide some interesting insights this time around. The most important insight, gleaned from Figure 2, is the reminder that the unemployment rate is the ratio of two variables, employment and the labor force.
Figure 2: Unemployment rate (blue, left axis), and civilian employment (red, right axis) and civilian labor force (green, right axis), in thousands, all seasonally adjusted. NBER defined recession dates shaded gray. Source: BLS, May employment situation via FRED, NBER, and author’s calculations.
So while civilian employment rose 422,000, the labor force rose by 642,000, resulting in the slight increase in the unemployment rate. In this sense, the rise in the unemployment rate is a good thing, insofar as labor force participation is rising.
Nonetheless, it’s clear that the economy is slowing, as evidenced by high frequency indicators of GDP, as shown in Figure 3.
Figure 3: Log real GDP (blue bars), and monthly GDP from Macroeconomic Advisers (red), and e-forecasting (green). NBER defined recession dates shaded gray. Source: BEA (2012Q1 2nd release), Macroeconomic Advisers, e-forecasting, and NBER.
These outcomes, combined with the widespread slowdown in Europe and China, confirm that responsible US policy makers would implement further expansionary policies.