Why Were May’s Jobs Numbers So Low?

Indeed chief economist Tara Sinclair explains why the latest jobs numbers were surprisingly low.

Last week, I wrote that we were all on Fed watch, waiting to see if the results of the June jobs report would encourage the central bank to raise interest rates. But while consensus forecasts estimated the economy would add 160,000 jobs from May to June, the results came in far lower.

The US economy only gained 38,000 jobs in May—a strong message to the Fed not to raise rates. On Monday, Fed Chair Janet Yellen made it clear she’d heard that message, stating that the central bank would not consider a rate increase until the economic uncertainty clears.

Despite the disappointing growth, it’s important not to read these low numbers as cause for panic. There are bright spots in the jobs report and in the Job Openings and Labor Turnover Survey (JOLTS), released yesterday. Here’s my assessment of why the numbers came in so low and what we can expect in coming months:

Domestic and international politics are causing uncertainty

In the middle of an election season, it’s possible that the domestic political climate is causing uncertainty for both employers and job seekers. People may be putting a hold on their plans, waiting to see the impact of very different policy proposals from the candidates.

It’s also likely that international politics are playing a role. This month, the United Kingdom will vote on whether to remain in the European Union. Employers with workforces in the US and Europe would be significantly affected if Britain leaves the EU, and such a change will affect businesses across the globe.

The Verizon strike may have had a multiplier effect

A strike involving 35,000 Verizon workers surfaced in the report, with a significant loss in information employment. This is not nearly enough to explain the entirety of the weak jobs report, but it’s possible that other employers in the IT sector, and job seekers too, took the strike as a sign of instability in the industry. In economics, this is called a multiplier effect—one event sends ripples throughout the economy, with impacts that are difficult to measure.

The striking Verizon employees went back to work this week, meaning next month’s report will at least recover that loss.

Mismatch between employers and job seekers is worsening

Wednesday’s JOLTS figures beat consensus forecasts, coming in at 5.8 million job openings for the month. But while job openings hit a record high, hires fell to 5.1 million. The gap between those two figures demonstrates the struggle employers are facing in attracting and retaining enough talent.

The strong increase in job openings means we’ll likely see increased employment next month, but that’s only if employers are able to incentivize people to fill their open roles. While we saw some wage growth in May, it’s not at the level we’d expect to draw in people who have left the labor force or to convince people to change jobs. We also saw the quits rate drop back down to 2.0% which suggests that employers aren’t filling roles from the employed talent pool at rates we’d expect, especially given the amount of employer demand we’re seeing reflected in job postings in many industries.

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