Indicators Point Toward Tightening Labor Market, Despite May Slowdown

Job growth softened in May, with nonfarm payroll employment up 73,000, according to the U.S. Bureau of Labor Statistics. Though it’s down from the March and April figures, the employment slowdown is likely to be modest, says The Conference Board, pointing to an increase in its Employment Trends Index for the month, following a decline in April. The index stood at 111.63 in May, up from 110.21 in April, and marking a 3.5 percent gain over the past 12 months.

“The Employment Trends Index increased in May, more than reversing the declines in March and April,” says Gad Levanon, chief economist, North America, at The Conference Board. “While we expect some slowdown in job growth, the Employment Trends Index suggests that this slowdown is likely to be modest enough to still tighten the labor market in the coming months. There is growing evidence that recruitment difficulties and time to fill open positions are now historically high, holding back the pace of hiring and job growth. As employers continue to operate in a tightening labor market, we are seeing more signs of stronger automation efforts to reduce demand for workers.”

In determining its Employment Trends Index, the Conference Board aggregates eight labor market indicators that it has found are accurate within their own areas. It notes that aggregated individual indicators are placed into a composite index to filter out “noise” and show underlying trends more clearly. The May increase in The Conference Board’s Employment Trends Index was fueled by positive contributions from seven of the eight components.

Speaking on the Bureau of Labor Statistics’ job growth report, Levanon says the report is “consistent with the growing sentiment among markets and economists that the U.S. economy is slowing down. Some of this slowdown is coming from the manufacturing sector, where employment growth has almost come to a halt. The slowdown in employment growth could also reflect stronger automation efforts by employers struggling with recruiting and controlling labor cost growth in a tight labor market.”

Levanon adds, “We still expect the U.S. economy to continue to grow slightly above its long-term two percent trend through at least the end of the year, generating enough job growth to continue tightening the labor market. U6, the broadest measure of labor market slack, declined to 7.1 percent in May, the lowest rate since 2000. Wage growth in the establishment survey did not accelerate in recent months, but with the labor market continuing to tighten we expect acceleration in wages to resume later in the year. Overall, today’s job report is another signal that the Federal Reserve will consider a rate cut later in 2019.”

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