Employment Report: 272K Jobs Added in May

The latest employment report showed 272,000 jobs were added in May, exceeding the expected addition of 182,000 new jobs. Meanwhile, the unemployment rate inched up to 4.0%, its highest level since January 2022.

Here is an excerpt from the Employment Situation Summary released this morning by the Bureau of Labor Statistics:

Total nonfarm payroll employment increased by 272,000 in May, and the unemployment rate changed little at 4.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment continued to trend up in several industries, led by health care; government; leisure and hospitality; and professional, scientific, and technical services.

Here is a snapshot of the monthly change in nonfarm employment over the last 3 years.

PAYEMS monthly change

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 latest 12-month moving average is at 230,000.

PAYEMS Monthly Change

The next chart 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.

The latest unemployment rate is at 3.964% (to three decimal places), its highest level since January 2022.

Unemployment Rate and the Market

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. The current unemployment rate of 3.96% (to two decimal places) is just above the latest 12-month moving average of 3.76% (to two decimal places).

As the inset table shows, the correlation between the MA troughs and recession starts is remarkably close. The latest trough in the series occurred 11 months ago in June 2023, where the 12-month moving average of the unemployment rate fell to its lowest level since January 1970.

Unemployment Rate and Recessions

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 6.3%, up from 6.2% the previous month and the highest level since January 2022.

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 0.8%, up from 0.7% last month.

Unemployed 27+ Weeks