The Sobering Message in May's Jobs Report

Unemployed workers
Unemployed workers

An initial analysis of the 431,000 jobs total reveals a May jobs report that was a major disappointment. Dismal might be a better word, as private sector hiring is still way too low.

First, the economy added 431,000 jobs in May -- well below the 540,000 Bloomberg survey estimate.

Second, after excluding the 411,000 U.S. Census workers hired, private sector payrolls rose by a scant 41,000 (net of public sector losses other than Census jobs).

Third, the Labor Department lowered its estimate for jobs created in March to 208,000 from the previously released 230,000. Economists were expecting an upward revision. The government's estimate for jobs created in April remained the same at 290,000.

Still Too Low

With the May report revealing very weak hiring for permanent, private sector positions, that will likely increase the debate regarding the impact of Europe's debt crisis on job creation, U.S. GDP growth, in general, and the economy's ability to ascend to self-sustaining expansion status. As of now, private sector job growth is still too low.

However, the May report had a few bright spots. The U.S. unemployment rate did drop to 9.7% from 9.9% in April, and that's also down from a high of 10.%1 hit earlier in the recession. However, that rate drop is tempered somewhat by a qualifier: 322,000 adults dropped out of the labor force, and therefore aren't counted as unemployed.

Also, manufacturing employment increased by 29,000 in May, and the sector has added 126,000 jobs over the past five months. As a result, after a nearly two-year contraction -- and after being written off by some economists as a decaying U.S. sector -- manufacturing is, ironically, leading the albeit light U.S. job recovery.

Unemployment chart
Unemployment chart

In addition, temporary jobs outside of Census workers increased by 31,000 in May, putting the total temporary jobs added since September 2009 at 362,000. That's somewhat encouraging because historically a rise in temp hiring usually precedes a rise in permanent job additions.

Also in May, the health care sector added 13,000 jobs, and transportation rose by 11,000. On the down side, 35,000 construction jobs were eliminated, the financial sector lost 12,000 and retail dropped 7,000 jobs.

By Another Measure, Joblessness Hit 17.1%

Despite those positives, the overall state of the U.S. labor market has to be characterized as weak, despite five months of job gains, including three straight months of increases above 200,000. The U.S. economy still isn't creating the roughly 150,000 to 200,000 private sector jobs per month needed to substantially reduce unemployment and help the recovery ascend to self-sustaining status.

As of now, the key feature of the U.S. job market remains unemployment and underemployment. An alternate measure of unemployment, one that includes part-time workers who want full-time work and discouraged workers, rose to 17.1% in May from 16.6%.

What's more, the U.S. economy remains 7.8 million jobs below where employment was when the recession started in December 2007, according to data compiled by the Economic Policy Institute, a liberal think tank based in Washington.

In sum, May's payroll did little to suggest that the labor market picture has reached healthy levels. On the contrary, it suggests the U.S. now has two deficits to overcome on the road to economic health: a budget deficit and a jobs deficit.