May Jobs Report: Summer Starting Early

The latest jobs numbers are out from the U.S. Bureau of Labor Statistics. What do they mean for job seekers, employers and investors? Here’s a quick take from Glassdoor’s Lead Economist Daniel Zhao.

The May jobs report shows some early summer heat in the job market. Strong payroll growth and even an uptick in wage growth point to residual heat in the job market that is not dissipating. The job market has continually defied expectations over the last few years: first by recovering faster than expected from the pandemic and now by cooling much more steadily and slowly than forecasted.

Key stats:

How broad-based is jobs growth?

Education, health services and government have been the primary drivers of jobs growth over the last year, accounting for a whopping 68% of jobs added in the second half of 2023. In May, that figure fell to 47.4%, the lowest since last May, indicating that the foundation of jobs growth is improving.

Jobs growth was still strongest in service sectors, but upticks in construction and manufacturing helped boost payroll employment in May. The breadth of jobs growth is key to the resilience of the expansion.

Rising unemployment hits Black workers hardest

The clear blemish on today's report was the unemployment rate rising to 4% in May, the highest level since January 2022. While 4% unemployment would historically be considered a strong job market, the upward trend is a concern as rising unemployment is often a precursor of recessions.

In particular, the Black unemployment rose 0.5 percentage points in May to 6.1%. While the Black unemployment rate has been volatile in recent months, its 3-month trailing average does seem to show an upward trend in unemployment for Black workers. The Black unemployment rate is too volatile to be a well-calibrated recession indicator, but it is a warning sign from a group of workers that are often hardest hit during tough economic times.

Prime-age labor force participation reaches highest level since 2002

The rise in unemployment in May was also paired with falling labor force participation. However, the prime-age (25–54) labor force participation rate actually rose in May to 83.6%, the highest level since 2002. The long and sluggish recovery from the Great Recession led to fears that prime-age labor force participation had somewhat permanently declined, so the recovery to 2002 levels is an impressive milestone.

The reason for the diverging measures is that most of the decline in the labor force came from workers age 20–24. This group is traditionally excluded from the “prime working age” group as many are still in school. However, this trend does also align with the soft hiring environment we see in the JOLTS report. Decreased turnover from low layoffs and quits may mean fewer opportunities for new workers to enter the job market, explaining why younger workers may feel particularly discouraged by the job market despite the low headline unemployment rate.