Jobs data are still well short of what many economists want to see, leading to just mild gains on Wall Street.
MANHATTAN (CN) — Sometimes good news is just not good enough, as investors remain unimpressed by minor increases in employment data and are holding off making huge moves on the markets.
During the abbreviated week of trading, the Dow Jones Industrial Average gained just 230 points by Friday’s closing bell. The S&P 500 fared even worse, picking up just 25 points, while the Nasdaq finished the week up only 66 points.
Driving the tepid gains are jobs data showing mild, measured improvement. Unemployment claims once again dropped, this time to 385,000 initial claims filed the week ending May 29 from 406,000 claims the prior week. Unemployment claims have steadily fallen the last few weeks, and hit fewer than 400,000 for the first time in about 15 months.
The employment situation has disappointed ever since last month’s jobs report, when the Bureau of Labor Statistics reported only 266,000 were gained in April, compared with the 1 million jobs many had expected. That number was revised up slightly to a 278,000-job increase in April.
Things were a little better on Friday, when the BLS reported total non-farm payroll employment rose by 559,000 last month, with the unemployment rate finally dropping under 6% to hit 5.8%. According to the report, leisure and hospitality saw the biggest gains, posting more than half the month’s gains with a 292,000 increase. Two-thirds of that number was in food services and drinking establishments.
Other sectors saw modest increases, with manufacturing gaining 23,000 jobs and health care and social assistance increasing by 46,000 jobs. Construction and retail trade saw slight decreases, however, with 20,000 and 6,000 jobs lost in May, respectively.
The boost in jobs was foretold somewhat by ADP’s own employment report on Thursday. According to the payroll company, the private sector gained 978,000 jobs in May. The split was nearly even among small, medium and large-sized businesses, though the service-providing sector accounts for 850,000 of the job gains.
“The 978,000 gain in the ADP measure of private employment in May would appear to pour cold water on the idea that widespread labor shortages are continuing to weigh on hiring,” Andrew Hunter, senior U.S. economist at Capital Economics, wrote in an investor’s note.
He acknowledged economic data from the Federal Reserve and recent manufacturing surveys may portend a hiring lag in the next few months, but said the data dispels some of the claims that employees don’t want to return to work.
Many analysts looking at the Institute for Supply Management manufacturing index, which gained only slightly last month despite a good boost in orders, say manufacturing is hampered by labor constraints. That, in turn, is pushing prices upward.
“Companies and suppliers continue to struggle to meet increasing levels of demand,” Timothy Fiore, chair of the ISM’s survey committee, said in a statement. He noted that “record long lead times, wide scale shortages of critical basic materials, rising commodities prices, and difficulties in transporting products are continuing to affect all segments of the manufacturing economy.”
The report also highlights how manufacturing growth is limited by worker absenteeism and difficulties filling open positions.
Still, experts say the recovery is continuing, even if labor shortages have hampered it, and some say the data provides ammunition for both sides of the debate.
A Friday poll by the U.S. Chamber of Commerce found that 30% of 506 employees do not expect to return to work at all this year. One in six employees who lost their jobs during the pandemic say it is “not worth” searching for a new job due to the money earned by unemployment benefits.
“We have 9.3 unemployed Americans and 8 million unfilled jobs,” Neil Bradley, the chamber’s head lobbyist, said in a statement. “We have to do a better job filling these open jobs.”
Others say that the fact that more than half of all states have opted out of enhanced federal unemployment programs could spur more Americans back into the work force. “The ADP report could be a sign that labor shortages are already starting to clear, as virus-related health fears and childcare responsibilities stemming from school closures start to fade,” Hunter wrote.
It is not just enhanced unemployment that is winding down, as the Small Business Administration announced this week the Paycheck Protection Program is slated to close out new loan guaranty applications. The PPP, which had a rocky rollout last year, has doled out nearly $800 billion to small businesses and has largely been considered a success in keeping companies afloat during the lockdowns.
While the rebound has not been charging forward as some had hoped, the simmering spring gains could pave the way for jobs to come to a full boil in the second half of the year.
“We could see a much-needed acceleration in the summer months, with pent-up demand bolstering consumer spending and in the fall with fully reopened schools alleviating childcare challenges facing parents,” Daniel Zhao, senior economist at Glass Door, wrote.