By Joe Higgins, Quest 4 Quality
- The U.S. added 559,000 jobs in May but expected 661,000.
- Unemployment dropped from 6.1 percent to 5.8 percent month-over-month, a very positive sign for the summer.
- The U.S. Labor Department says there are 8.5 million jobs available but not enough workers to fill them.
- Wages rose 2 percent year-to-date and may continue to climb as shortages continue.
The U.S. Labor Department released its May jobs report last week and it left many economists a little confused.
Should we be excited about 559,000 additional jobs last month, which is one of the highest monthly employment gains in U.S. history?
Or, because it was short of the 661,000 new hires we expected, is it a sign that the economy is not heating up as fast as we had hoped?
My quick read is that we need a few more months to come up with a reasonable explanation for all these numbers.
The 559,000 figure is a reasonably good number, as it dropped the unemployment rate to 5.8 percent from 6.1 percent in April. It is also a significant predictor that we are moving in the right direction as the economy rebounds from the effects of the pandemic and a recession. I know that many of us were expecting to see more Americans going back to work in larger numbers, but the recovery is going to move at its own pace for a while.
Consider this: The April jobs report showed only 266,000 new hires, and that was well below expectations of nearly 1 million added jobs. The low employment numbers also stand in stark contrast with the estimated 8.5 million jobs that are reportedly going wanting across the U.S. while many businesses face an extraordinary shortage of available labor. It is one of the pandemic’s many paradoxes that we face in the waning days of COVID-19.
The big winner for jobs in May came from the leisure and hospitality sector, which added 292,000 jobs. That means the states with the most tourism scored the most new hires. For example, California accounted for 38 percent of the newly created jobs nationwide.
Retail lost 6,000 jobs last month, but the numbers are expected to pick up steadily over the next six months.
Still, given that I was anticipating an outstanding jobs report, I have to say that over the past two months the combined numbers have been disconcerting.
Keep in mind, however, that this situation is different than the Great Recession of 2008, in that it took six years for the unemployment rate to fall from 10 percent in November 2010 to 4.7 percent in December 2016. In contrast, we all watched the unemployment numbers drop from 14 percent in May 2020 to the current 5.8 percent. This portends a strong recovery over the next twelve months. Indeed, the Atlanta Fed is now forecasting 11 percent GDP growth in the second quarter and continued expansion over the balance of the year.
While the U.S. economy may not be living up to its current potential — and I think I can conservatively predict that it is not going to rebound the way appliance, furniture and electronic retail did through all of last year — we may begin to hit our highest gains this fall.
Here’s something else to consider: The labor shortage caused a 0.5 percent spike in wages in May, and after rising 0.7 percent in April the year over year increase for 2021 now stands at 2 percent. This level of wage growth could potentially mean that our current levels of inflation will persist and become permanent. I am still of the opinion that we will see a period of inflation but that it is not sustainable given current conditions, and that markets will reach a balance by year’s end.
Remember, our country is healing from a global pandemic that slashed 22.4 million jobs in March and April last year and pushed us into recession. Prices are rising on commodities like corn, copper, aluminum and lumber, and inflation is hitting us hard right now. When you add up all the pandemic relief spending, from the Cares Act to the American Rescue Plan Act to quantitative easing, we have put nearly $10 trillion dollars of stimulus into our economy. So look past the May numbers, take this as a trend, and consider where we will be over the next six months. I think the recovery is happening and the results for our dealers will be positive and robust in the second half and beyond.
The Bottom Line
America is reopening its doors and citizens are gearing up for a summer of travel, dining, parties and shopping. Malls are already busy, more cars are on the road, restaurant bookings are near pre-pandemic levels and consumer confidence is up slightly in May. COVID cases, hospitalizations and deaths are at 12-month lows, vaccinations are being administered at a swift pace, and more people are going back to their offices.
The U.S. economy is on the move as we transition from the dark days of winter to an expansionary period over the summer and fall.
The bottom line for BrandSource dealers is that housing is surging; home prices and thus home equity are at all-time highs; credit use is at its lowest levels in 10 years; and savings are the highest in history.
Your business will thrive over the next few years. It is never out of style to remodel a kitchen, to decorate with new furniture, or to buy the trendiest new big-screen TV. America is in recovery after a year of struggle, and it is beginning to feel normal again.
Joe Higgins is a 42-year veteran of GE and Whirlpool Corp. who brings his experience to bear as a business consultant, public speaker, AVB keynoter and YourSource News contributor. Visit his website, Quest 4 Quality with Joe, at www.q4qwithjoe.com.