Markets & Finance

Jobs: Will a May Surge Be Followed by a June Slump?


With Census hiring peaking in May, Action Economics expects a gain of 480,000 U.S. jobs. But a fall-off in Census jobs could lead to a payrolls decline in June

Action Economics expects U.S. nonfarm payrolls to surge by 480,000 in the government's May employment report, scheduled for release on June 4, with a hefty boost of 420,000 from Census hiring and a 400,000 rise for government payrolls, alongside an 80,000 rise in private payrolls—the fifth straight monthly increase—that would come in below the surprisingly large 231,000 increase in April and the 174,000 gain in March. We also expect the jobless rate to moderate to 9.8 percent from the surprising pop to 9.9 percent in April, while the average workweek holds at 34.1 hours and average hourly earnings post a 0.1 percent gain. The industry mix should reveal the 400,000 surge in government hiring mentioned earlier, alongside a 10,000 rise in goods-producing employment that includes a 20,000 gain in factory employment, and a 70,000 gain in service-sector jobs excluding government. Though construction employment has risen in each of the previous two months, the gains may reflect the boost in April housing-sector activity spurred by the Apr. 30 expiration of the home buyers' tax credit, and could prove temporary. Census Hiring Outlook

For 2010 Census hirings overall, we assume that the contribution to government employment will climb to a cumulative peak of 574,000 by May, which would be just above the 530,000 seen in May 2000 and well above the 335,000 seen in May 1990. The climb to a May peak should be quickly reversed by yearend, and generally hiring levels fall by nearly half in June and a little more than half by July. Given an assumed 250,000 drop in Census hirings in June, the next payroll figure after the May report should reverse into negative territory; our estimate calls for a 100,000 decline in payrolls in June, which will toss some cold water on enthusiasm associated with the May increase. Here is a look at some of the other data that Action Economics has factored into its forecast: The ADP survey of private-sector employment scheduled for release on June 3 is expected to reveal a 40,000 May gain, following a 32,000 April increase that is poised for upward revision toward the 231,000 private-payroll gain in the government's April jobs report. The 19,000 March figure should also be revised toward the 174,000 March private-payroll gain. The ADP industry breakdown should reveal a flat May figure for jobs among goods producers with a 20,000 factory job gain, while the service employment increase should largely match the headline gain. The weekly initial jobless claims figures for May provide the greatest source of downside risk for payrolls. Initial claims have averaged a surprisingly lofty 459,000 thus far in May, vs. readings of 460,000 in April and 450,000 in March, and prior averages of 468,000 in February and 478,000 in January. Overall, the downtrend in initial claims has flattened out since early February, alongside a flattening downtrend in continuing claims as well, and the levels of these measures suggest that private-payroll growth is stalling around the zero area despite payroll gains over the last few months. Other Indicators Weak

Other labor-market indicators have been weak in May. The employment components of the available factory sentiment reports have shown a pattern of mostly declines for May, which is consistent with our assumption that private-payroll growth may have been overstated in the last two monthly payroll reports. In contrast, most consumer-confidence measures edged up on the month, but at levels that remain deep in recession territory. Overall, the May payroll report should benefit from a hefty Census boost, though beyond this distortion the labor market continues to mend only slowly, and we assume that a lean May private-payroll gain will reverse some of the enthusiasm following the surprisingly large private-payroll gains in March and April. We have yet to see the degree to which the resumption of positive gross domestic product growth will start to accelerate to the higher growth rates usually seen in the early years of expansions. The fuel for the current boost to the U.S. economy—lean manufacturer inventories—may run dry before GDP growth has accelerated to rates that will allow a sustainable jobless rate downtrend. The May jobs report will be given a positive spin in the media given the big surge in Census hirings, but payrolls are poised for a Census-led decline in June that could top 100,000 if we don't see a sustained climb in the pace of private-sector job creation.

MacDonald is director of investment research and analysis for Action Economics.

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