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  • Employers Gain Steam in May and Add 559,000 Jobs

  • Manufacturing and Services Sectors Both Pick Up Gains Despite Supply Chain Issues


U.S. employers added 559,000 jobs in May, below consensus expectations but still double from the previous month. While vaccination rates increased and businesses continue to reopen, half of U.S. states will not offer expanded federal unemployment benefits of $300 per week, and we believe it will take some time to see how labor markets respond. Multiple factors, however, are playing a role in the choppy job recovery as supply chains work through bottlenecks and labor shortages, and as individuals examine health and exposure risks, childcare needs, and returning to work.

The services industry, which took the biggest hit from pandemic lockdowns, continued to lead job creation in May. Leisure and hospitality added 292,000 jobs, accounting for 60% of private payroll gains as scores of people returned to bars and restaurants. Education, health care and social assistance also showed growth. Public and private education added 144,000 jobs as many schools reopened. Health care and social assistance contributed 46,000 jobs to the total as non-pandemic health care needs increased.

The May unemployment rate fell 30 basis points (bps) to 5.8%, the first time it dropped below 6% since the pandemic started. The Job Cut Report from Challenger, Gray and Christmas also showed ongoing improvement. Job cut announcements in May increased to roughly 24,600 from 22,900 in April, a modest increase, but was down about 93.8% YOY, hitting the lowest level observed in two decades.

While jobs are being added back at an encouraging clip, another recent report highlights the challenges of the current imbalance between labor supply and labor demand. The National Federation of Independent Business said in its May report that a record-high number of 48% of small business owners reported unfilled job openings in May, up from 44% in April.

Monthly Change in U.S. Private Payrolls since January 2020


Both the ISM manufacturing and ISM services indices posted solid gains last month in a sign that the recovery is expanding in a range of economic sectors despite supply chain bottlenecks that have limited the availability of some key inputs.

The manufacturing index rose from 60.7 to 61.2 during May, holding above 60 for the fourth consecutive month. The index improved on the back of rising new orders as 16 out of 18 manufacturing subsectors reported growth in this area. The production and employment components slowed but remained above the 50 point mark in expansionary territory.

Meanwhile, the services index climbed more than a point to 64.0, the highest level on record for a series that dates back to 1997 and marking the 12th consecutive month above the neutral threshold of 50. All 18 service subsectors reported growth in business activity as well as gains in new orders, suggesting broad-based positive momentum.

The gains in activity took place against a backdrop of supply chain disruptions that led both manufacturers and services providers to report longer supplier delivery times above already elevated levels, but rising stockpiles may mitigate some of these issues moving forward. The Census Bureau reports wholesale inventories increased 0.8% during May, and nonauto retail inventories expanded 0.5%. Retail inventories for vehicles and car parts continue to suffer, however, dropping 7.0% in May due to continued semiconductor shortages.

Retail Inventories to Sales Ratio



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