The employment report for May showed a 339,000 increase in total nonfarm payrolls. The addition is well above expectations of 180,000 new obs. Meanwhile, the unemployment rate increased to 3.7%.
Here is an excerpt from the Employment Situation Summary released this morning by the Bureau of Labor Statistics:
Total nonfarm payroll employment increased by 339,000 in May, and the unemployment rate rose by 0.3 percentage point to 3.7 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, government, health care, construction, transportation and warehousing, and social assistance.
Here is a snapshot of the monthly change in nonfarm employment since 2000 with a callout to the last 12 months.
For another view, here is the monthly percent change in nonfarm employment since 2000. We've added a 12-month moving average to highlight the long-term trend.
The chart here shows the pattern of unemployment, recessions and the S&P composite since 1948. Unemployment is usually a lagging indicator that moves inversely with equity prices (top series in the chart). Note the increasing peaks in unemployment in 1971, 1975 and 1982. The mirror relationship repeats itself with the previous bear markets. The COVID pandemic briefly showed the same type of relationship between equities and unemployment, though the impact was temporary and irrational exuberance took over once again.
Now let's take a look at the unemployment rate as a recession indicator or more specifically the cyclical troughs in the unemployment rate (UR) as a recession indicator. The next chart features a 12-month moving average of the UR with the troughs highlighted. As the inset table shows, the correlation between the MA troughs and recession starts is remarkably close.
Here's another chart to illustrate the reality of the unemployment rate - the unemployment rate divided by the labor force participation rate. We are currently at 5.8%.
The next chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. This rate has fallen significantly since its 4.4% all-time peak in April 2010. After the COVID pandemic, the rate reached as high as 2.6% but has since fallen and is now at 0.7%, unchanged from last month.
The next chart is an overlay of the unemployment rate and the employment-population ratio. This is the ratio of the number of employed people to the total civilian population age 16 and over.
The inverse correlation between the two series is obvious. We can also see the accelerating growth of women in the workforce and two-income households in the early 1980s. Before the COVID pandemic, the employment-population was range-bound between 54.9% and 64.7% — the lower end harkens back to when Eisenhower was president of a country of one-income households, the Korean War was still underway, and rumors were circulating that soft drinks would soon be sold in cans. In April 2020, because of the global pandemic, we saw the employment-population ratio drop to its lowest level in series history to 51.3%. Since then it has been gradually climbing to its pre-pandemic range, with the latest ratio at 60.3%, down from last month.
For a confirming view of the secular change the US is experiencing on the employment front, the next chart illustrates the labor force participation rate. We're at 62.6%, unchanged from last month.
The employment-population ratio and participation rate will be interesting to watch going forward. The first wave of boomers will continue to be a downward force on this ratio. The oldest of them were eligible for early retirement when the great recession began, and the transition of the boomer cohort to full retirement age won't end until 2030.
What is the average length of unemployment? As the next chart illustrates, we are perhaps seeing a paradigm shift — the result of global outsourcing and efficiencies of technology. As of late, the duration of unemployment has been in a steady decline since June 2021, with the latest monthly figure showing the duration is at 21.2 weeks, well below the 40.7-week all-time high in late 2011.
The Bureau of Labor Statistics' broadest measure of unemployment is the U6 series, which includes the total unemployed, plus all marginally attached workers plus total employed part-time for economic reasons. This series dates from 1994.
The U6 series is currently at 6.7%, up from last month.
Notes: The start date of 1948 in the charts above was determined by the earliest monthly employment data collected by the Bureau of Labor Statistics. The best source for the historical data is the Federal Reserve Bank of St. Louis.
The S&P Composite is a splice of the S&P500, which started in 1957, with the S&P90, which preceded it. ETFs associated with the S&P 500 include: iShares Core S&P 500 ETF (IVV), SPDR S&P 500 ETF Trust (SPY), Vanguard S&P 500 ETF (VOO), and SPDR Portfolio S&P 500 ETF (SPLG).
This article was originally written by Doug Short. From 2016-2022, it was improved upon and updated by Jill Mislinski. Starting in January 2023, AP Charts pages will be maintained by Jennifer Nash at VettaFi | Advisor Perspectives
Here's our list of monthly employment updates:
ADP Employment Report
Civilian Labor Force, Unemployment Claims, and the Business Cycle
Labor Market Conditions Index
Long-Term Trends by Age Group
Aging Work Force
Ratio of Part Time and Full-Time Employment
Workforce Recovery Since Recession
Read more updates by Jen Nash