HFF Analysis of May 2016 BLS Employment Report

Tuesday, June 6, 2017

HFF is pleased to report on the latest employment expansion statistics from May 2016 and a look back at 2015. Our research team analyzes trends and data to give readers a better view into the current state of the economy and how employment is being affected.

Employment Expansion

U.S. job growth slowed for a second consecutive month in May with employers adding a lower than expected 38,000 jobs and the previous month’s total being negatively revised from 160,000 jobs to 123,000 jobs. Monthly employment growth since October 2010 has averaged 199,000, the highest level since the 1990s. However, this average is declining as the pace of continued growth loses steam.

Current expansion cycle similar to 1991 to 2000 and greater than 2004 to 2007 expansionary period, but only after a significantly delayed recapture of the nation’s previous employment peak.

Attractive Job Growth Cooling

The U.S. created 2.3 million jobs in 2015, the second highest level of expansion since 1999. The last five years’ job growth is on par with the expansionary period from 1992 to 1995.

In 2015, the U.S. created 2.7 million jobs, but nearly 42 percent of private-sector job gains came from construction, manufacturing, retailers, hotels, restaurants and temporary help agencies, all typically low-paying sectors. Combined, Retail Trade (323,000) and Leisure & Hospitality (394,000) created approximately 717,000 jobs in the year ended May 2016, accounting for some 30 percent of the headline growth nationwide. Retail Trade accounts for 76 percent of the headline Trade, Transportation & Utilities growth. We can therefore assume continued broad-based growth in the retail and industrial property types as we progress deeper into the economic recovery. Professional Business Services, the industry sector most closely aligned with office using employment, experienced expansion of 525,000 jobs in the year ended May 2016. Fortunately, Temporary Staffing only accounted for 17,000 (~three percent) of these positions. Temporary Staffing is slowing, however, implying hesitance in hiring the lowest cost employees companies can find in tentative expansions. Education & Health Services, which has performed well throughout the downturn being a recession-resistant industry, expanded by 678,000 jobs in the year ended May 2016, the highest of any major employment sector. Mining & Logging and Manufacturing continue to undermine headline growth with approximately 168,000 jobs being lost in the year ended May 2016.

Unemployment Rate

The Underemployment Rate augments the Unemployment Rate to include anyone marginally attached to the labor force who is either not employed or employed only part time. Fortunately, the Underemployment Rate has descending from a recent high of just over 17 percent. However, the spread between the two rates is near an all-time high and shows no sign of rapid compression. Moreover, the decline in the Unemployment Rate has been driven by an exodus of participants reducing the Participation Rate to 62.6 percent – one of the lowest rates since WWII.

Wage Growth

As the labor force approaches “full employment”, much attention has been cast to wage growth. The past three recessions were preceded by a period of FOMC tightening. Average hourly earnings growth exceeded four percent-plus in each of these periods as overall economic activity became reflected in strong wage growth. With the current year over year percent wage growth registering ~2.5 percent, one could argue overall economic activity has not yet reached levels that precede recessionary periods (often accompanied if not triggered by FOMC tightening to counter inflationary forces).

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