The unemployment rate shot up to its highest level since 1983 at 9.4% in May, but the pace of job destruction was the slowest since September, leading some analysts to revise expectations for the rest of the year.
The Bureau of Labor Statistics reported that 345,000 jobs were cut from the economy in May, compared to expectations for 520,000 losses. In the first three months of the year, the economy shed more than 700,000 jobs per month.
“Excluding the auto-dealers sectors, evidence is mounting that the end of the US jobs cutting cycle is near,” said John Herrmann, president of Herrmann Forecasting. He said the economy “should embark on a new economic cycle” as early as the third quarter of this year.
BMO’s Sal Guatieri called the report “another sign that the worst spate of recession-period job losses in over half a century is finally breaking.” He said job labor losses were clearly slowing, “removing a major impediment to economic recovery.”
Others were less optimistic, however.
Economics strategist Millan Mulraine from TD Securities said he is “somewhat doubtful that the dramatic improvement in May can be sustained.” While conceding that the report was much better than anticipated, he said there were ugly aspects to it as well.
“In particular, the aggregate number of hours worked declined by 0.7% M/M, which suggests that even though employers may not be dismissing workers at the pace that they did a few month ago, they continue to reduce the number of hours they work,” he said.
He added: “With the bargaining power of workers continuing to wane in the face of the weak labour market conditions, the pace of wage gains is slowing to a crawl, with average hourly wages rising by only 0.1% M/M, while on a yearly basis wages are up by only 3.1% Y/Y – its slowest pace of increase since November 2005!”
Similarly, DeutscheBank’s chief U.S. economist, Joseph LaVorgna, said the upbeat headline masked more ominous details in the report, like fewer hours and earnings.
“The length of the workweek declined by 0.1 hour to 33.1 hours, which is the aggregate hour equivalent of an additional loss of about 350k jobs,” LaVorgna said.
He added, “Average hourly earnings rose 0.1% in the month, lowering the 3- and 6-month rates of change to 1.7% and 2.2%, respectively. In short, wages are rolling over and this is likely to continue in light of another large jump in the unemployment rate to 9.4% from 8.9% previously.”
In the minutes following the release, crude oil rocketed past $70 for the first time since November. Ten minutes into the trading session, the S&P 500, Dow, and Nasdaq were each up between 0.7% and 0.9%.