JUNE 11, 2010
Census Hiring Paces Employment Gains
|Bureau of Labor Statistics|
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U.S. employers added jobs in May at the fastest pace in a decade, although gains were mostly a result of temporary government hiring for the 2010 census. Of the 431,000 net jobs created in May, 411,000 were linked to census hiring. The private sector, a better gauge of the labor market, only added 41,000 jobs—a disappointing performance following strong gains in March and April. The pickup in hiring, in addition to more workers dropping out of the labor force, brought the unemployment rate down to 9.7 percent from 9.9 percent. A 0.3-percent increase in aggregate hourly earnings and a 0.1-hour increase in the average work week were positive notes in May’s employment report.
Wall Street was disappointed by the payroll figures, as the consensus forecast was for an additional 536,000 jobs and greater job creation in the private sector. Following nearly two years of continual job losses, the U.S. economy has added 982,000 jobs this year and is expected to continue to add jobs throughout 2010.
Manufacturing Sector Holds Steady
The Institute for Supply Management’s (ISM) manufacturing index fell 0.7 points in May to a reading of 59.7. Despite the slight decline, the manufacturing sector remains well above 50, which is considered the break-even level between contraction and growth.
New orders, a measure of future production, remained unchanged at 65.7, hovering near its recent high of 65.9 in January. The employment index, which measures employers’ willingness to hire, was up 1.3 points to 59.8, suggesting a pickup in hiring in the manufacturing sector during May; the index has not topped 60 since May 2004. The sector has added jobs for six consecutive months.
ISM’s report suggests the manufacturing sector will continue to provide economic support in the coming months.
Service Sector Continues To Grow
The service sector of the economy continued to exhibit growth in May but lacked the strength demonstrated in the manufacturing sector. The ISM’s non-manufacturing index remained unchanged at 55.4 for the third consecutive month.
The New Orders Index remained solid at 57.1, and the employment index rose to 50.4 in May from 49.5 in April—the first time this measure has topped 50 since December 2007. The Prices Paid Index eased slightly, reflecting the recent easing in commodity prices.
Until the financial health of U.S. consumers improves, the service sector is unlikely to expand far beyond its current level.
Personal Income, Savings Climb
Income growth remained healthy in April. Personal income rose 0.4 percent for the second consecutive month and the fourth month out of the last five. Wages rose 0.4 percent after a 0.3-percent increase in March. April’s increase in wages brought growth above its year-ago level for the second consecutive month, but overall income growth is still relatively weak. While the recent trend in wage growth is positive, employers still maintain the upper hand with the unemployment rate hovering near 10 percent.
Consumers elected to hold on to their income gains in April as consumption was flat following six consecutive monthly gains. Meanwhile, the personal savings rate increased to 3.6 percent of disposable income, from 3.1 percent in March—the lowest level since October 2008. The April numbers suggest consumers are being more cautionary with their personal income, which can have short-term detrimental effects on the economy since nearly 70 percent of growth is based on consumer spending. Although the recovery has begun to gain ground, spending likely will remain depressed until unemployment levels decrease and consumer confidence improves, particularly with the recent poor performance of the equity markets.
New Home Sales Continue To Surge
Sales of new homes jumped 14.8 percent in April as homebuyers rushed to qualify for a government tax credit that expired at the end of the month. April’s gain was significantly higher than the projected 3.4-percent increase. Months of unsold inventory dropped from 6.2 to 5.0, which is the lowest level since the peak of the housing market in 2005.
The surge in new home sales comes on the heels of other positive economic data, indicating the economy is getting stronger. The performance of the housing market over the next few months will be a key measure of how dependent the economy is on government support.