It may look better than the Associated Data Processing private payrolls report that precedes the BLS report, as have prior months’. Private-sector employers hired just 27,000 people in May, a 7-year low, payroll processor ADP said Wednesday. That badly missed the forecast of 175,000 jobs from economists surveyed by Econoday, so it isn’t always accurate. This first guess of Friday’s upcoming federal unemployment report for May can be useful in predicting trends, however, as the graph shows.
The consensus is for Friday’s Labor Department numbers to be much higher, in line with the recent 200k+ payroll growth this year. The goods-producing sector (i.e., manufacturing) shed -43,000 jobs in the ADP report and the service-providing sector added +71,000 jobs in May.
It certainly looks like the manufacturing industries are losing growth per the ISM manufacturing and non-manufacturing indexes. The factory sector is a listing vessel based on the ISM manufacturing index for May which came in on the low side of estimates at only 52.1. This is the weakest score since October 2016 and shows modest-to-moderate rates of growth for production (51.2), new orders (52.7) and employment (53.7). Backlogs are sharply lower and in contraction, down 6.7 points in May to 47.2 for an unfavorable indication on June employment. But it still shows positive growth.
Whereas today’s ISM non-manufacturing index showed how strong the service sector is, and where most of the lower-paying jobs are created. Employment jumped 4.4 points to 58.1 in the best showing since October last year. New orders are also up 5 tenths to a very strong 58.6 which points to gains for the business activity index (production) in future months. Business activity in May was already very strong, over 60 at 61.2 for a 1.7 point gain.
The real issue will be how to fill the more than 7.5 million vacancies in the JOLTS report, which have to be more of those lower-paying jobs that remain unfilled. It’s why wages have risen so slowly for years and inflation has dropped to almost deflationary levels.
It also explains why housing hasn’t taken off during this recovery from the housing bubble. The median income of young adults in the 25–34 year-old age group that are the majority of new homebuyers was up just 5 percent, according to the 2018 report from Harvard’s Joint Center for Housing Studies.
Meanwhile, gross domestic product per capita, said the study, a measure of total economic gains, increased some 52 percent in 1988–2017. If incomes had kept pace more broadly with the economy’s growth over the past 30 years, they would have easily matched the rise in housing costs—underscoring how income inequality has helped to fuel today’s housing affordability challenges.
Harlan Green © 2019
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