May's Employment Report Is a Barn Burner!
J: I really wanted to use the phrase "barn burner" to describe May's employment report, but turns out I've been scooped. The use of the very colorful term "barnburner" to describe a phenomenally robust increase in employment appeared in a New York Times article on April 1 about the February data:
Job growth probably slowed in March.
Last month’s jobs report was a barn burner: Employers added 313,000 jobs in February, the most in one month since 2016, and the strong labor market drew hundreds of thousands of Americans into the work force. March’s data, due from the Labor Department on Friday, is unlikely to match those highs...
However, it seems so appropriate for the May data that I'll use it here anyway. It's perfect for the May numbers.
Perhaps the most spectacular piece of news from "The Employment Situation-May 2018" released by the Bureau of Labor Statistics on June 1 was the fact that the unemployment rate fell to 3.8 percent in May. As the chart below shows, this is tied with April 2000 for the lowest since the 3.5 percent rate in December 1969. If we go below that, which is my forecast and that of many others, we'll be at the lowest number since the 3.1 percent of October 1953. Won't that be something if it happens?
The graph also shows that this is the largest decline in the unemployment rate for any expansion since the end of World War II. The peak was 10.0 percent in December 2009, six months after the recession ended in June. That was the highest unemployment rate since 1940 except for the September 1982 through June 1983 period when it ranged from 10.1-10.8 percent. (L: I was living in a small town in central Ohio at that time and our unemployment rate was much higher!)
The low rates of unemployment spread across all levels of educational attainment. For people in the labor force with less than a high school degree, the unemployment rate was 5.4 percent in May. For those with a high school degree or equivalent, it was 3.9 percent. For people with some college or an associate degree is was 3.2 percent and for college graduates, it was a very low 2.0 percent. Clearly, this is a great year to be graduating from college.
Of course, one reason for the low unemployment rate is the relatively low labor force participation rate, which was 62.7 percent in May and has been around that level for four years now. There is much hope that the strong job market will draw more people into the labor force, but there is little evidence of that so far.
The next chart clearly shows what's gone on with the participation rate. It rose steeply from 1973-1990 as the baby boomers entered the labor force by the millions. It's been falling as they have been retiring.
Dr. Monica Herk, Vice President for Education Research at the nonpartisan Washington, DC think tank called the Committee for Economic Development, has a recent article that recommends the use of localized "online talent marketplaces" to raise the participation rate and lower unemployment further. These marketplaces offer psychometrically valid tests of aptitudes and interests. Test-takers are then matched to relevant digital job opportunities in their area, based on their results. They also receive information on available education and training courses, many of which are free. There are examples of these kinds of websites in the European job market. Her plan seems very worthwhile for the US, too.
We'll keep watching for an uptick in that participation rate, but in the meantime, enjoy the good news on employment growth. It really is spectacular.