Solid Job Growth Ahead Despite Softening Employment Trends

The U.S. Bureau of Labor Statistics reports the country’s economy added 223,000 jobs in May, marking 92 uninterrupted months of job growth, and dropping the unemployment rate to 3.8 percent, the lowest it has been since December 1969. The Conference Board Employment Trends Index, however, decreased in May after five consecutive monthly gains. The index now stands at 107.69, down from 108 in April. The change represents a 3.9 percent gain in the index compared to a year ago.

“The decline in the Employment Trends Index in May is probably a reversion to trend after the very rapid increases in recent months,” says Gad Levanon, chief economist, North America, at The Conference Board. “With the economy growing well above trend, we expect solid job growth to continue despite the difficulty in filling job openings.”

Brian Schaitkin, senior economist at The Conference Board, says, “Tightening labor markets led to a small acceleration in average hourly earnings to 2.7 percent during the last 12 months through May, compared to 2.6 percent last month. Today’s pickup in wage growth will increase the likelihood of the Federal Reserve raising interest rates three more times during 2018. Given the strong economic environment and increased signs of upward pressure on prices, faster wage growth represents an additional signal to the bank that the economy is bumping up against capacity constraints.

“Job growth was broad-based in May, with lagging sectors like retail trade joining booming sectors like transportation and warehousing in positive territory. The manufacturing sector also saw continued job growth, suggesting that shortages of blue collar workers and upward wage pressure in those occupations will continue. With so many sectors creating new job opportunities, the number of workers who have been unemployed for more than six months has fallen by almost one third during the past year.”

In calculating its Employment Trends Index, The Conference Board aggregates eight labor-market indicators that it considers accurate in their own areas. Aggregating indicators into a composite index filters out “noise,” more clearly revealing trends within the data. The indicators come from the U.S. Department of Labor, the U.S. Bureau of Labor Statistics, the Federal Reserve Board and other sources.

Six of the eight components contributed to the Index’s May decrease. From the largest negative contributor to the smallest, these were: The Percentage of Firms With Positions Not Able to Fill Right Now, Percentage of Respondents Who Say They Find “Jobs Hard to Get,” Job Openings, Number of Employees Hired by the Temporary-Help Industry, Initial Claims for Unemployment Insurance, and the Ratio of Involuntarily Part-time to All Part-time Workers. Real Manufacturing and Trade Sales and Industrial Production made positive contributions.

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