Breaking down the May jobs report: Expert analysis

The May employment report showed that the US added 272,000 jobs in May. Yahoo Finance sat down with experts to break down the report, with guests including Acting Labor Secretary Julie Su, New York Life Investments chief market strategist and economist Lauren Goodwin and Citi senior global economist Robert Sockin, and the Hamilton Project Director and Brookings Institution Senior Fellow in Economic Studies Wendy Edelberg.

For more expert insight and the latest market action, click here.

This post was written by Mariela Rosales.

Video Transcript

Will 2024 be another slow year for housing.

And could we see the fed lower interest rates sooner rather than later?

Yahoo Finance spoke with experts and analysts to discuss the latest economic data and what it all means, the main jobs appear to coming in hotter than expected.

The US adding 272,000 jobs.

That was well above expectations for more on the state of the labor market.

Yahoo Finance is Jennifer Burger is standing by with acting Labor Secretary, Julie Su Jennifer.

Take it away.

Hi.

Thank you so much as I am here with acting Labor Secretary, Julie Su for more on this morning jobs report secretary.

He always great to see for to thank you the report stronger on many metrics but the unemployment rate taking up to four percent.

We haven’t seen that level since January 2022.

The same time the labor force participation rate fell and the household survey showed a drop of 408,000.

So are these signs of weakness to come?

I don’t think so.

Jennifer, you know the numbers speak for themselves, right?

272,000 jobs created last month and the unemployment rate is still at or below 4% for the longest stretch since the 19 sixties were 30 months straight now.

And to be honest, many people thought that even 4% was too low to get to.

We would never get there.

Certainly not as quickly as we got there and not for as long of a time.

And real wages are, you know, continued to be very solid and the prime labor force participation rate take up a tiny bit.

And you know, again, overall just a very solid month ainu of a very solid year and a very solid economic recovery.

What about the fact that where we look at the job growth and where it’s coming from, it seems to be the government sector, health care sector month after month.

What is that saying about the job?

So remember the each month it has been very broad based across many sectors.

So yes, health care, yes government, but also professional services also construction, also leisure, hospitality, the overwhelming majority of growth that we’ve seen has been in the private sector.

Story continues

And so there’s just, it’s just overall, such a strong, steady, stable, you know, continued growth that I think this is certainly the coveted soft landing that many people said wouldn’t happen.

And again, just going to none of this was promised none of this was inevitable.

It happens because of steady leadership and that is what, you know, President Biden’s economic agenda has always been about this broad based growth, investing in America, creating more good jobs, creating more opportunity and we are seeing the results of that in the numbers.

So you think we are here, we have gotten this off landing.

Yeah, I mean, you know, it’s such a hard answer just because we’re always keeping an eye on what’s going to happen.

Right.

We’ve got to continue to do the good work.

We got to continue to, you know, invest in good jobs.

We have to continue to make sure that there’s safe roads and bridges and bring manufacturing home.

All of this work is the continued work of this administration.

But yes, I don’t think there’s any way but to say that the numbers don’t lie and say that, you know, this is a soft landing, strong job growth, low levels of unemployment, high labor force participation rate, all the things that you would want.

How much of this is to immigration and Golden Sachs had some stats out this week.

They said they think that 80,000 jobs per month last year were immigration this year?

They expect to tell one of around 50,000, how much you think immigration is adding to the story?

Well, immigration has always been a part of our, our labor force, right?

Part of our talent pool that’s been throughout history and certainly immigrant workers are part of the story too.

Now, the majority of the jobs that have been created have gone to native born workers.

So I think that’s important too.

And what it really tells us is instead of an economy where we have a shrinking pie that has to be divided up among more people.

We are seeing a bigger pie overall.

That’s what the job growth demonstrates.

Right.

That’s what the over 15 million jobs created since the president has come into office.

The most of any president in that same time period tells us when you create a bigger pie, there’s more for everybody.

How do you see President Biden’s new executive order on the border impacting the labor force?

Well, we don’t really see an impact in the labor force at all.

I will just say as the acting labor secretary, I think it’s important to emphasize that all workers regardless of status have the protections of labor laws.

And that’s why we keep talking about good jobs that we want everybody to have a good job.

That’s why this summer I’m going to, you know, I just launched our good job summer tour, going to cities across the country to talk about the jobs that are being created, to talk to working people and the families about the impacts of those good jobs.

And to really highlight that this is fundamental to the president’s vision of how we build a strong economy and strong communities.

One major highlight of this report is the women’s participation in the workforce hitting another record high for a second month in a row.

Secretary, what is this to?

I know we’ve talked about this year that women have in so many ways powered the economic recovery that we’ve seen.

And as you said yet again, the labor force participation rate for women reach another all time high.

This is the highest since this data was collected first in 1948.

And as you also noted the second time, the second month in a row and actually the third month total since this president has come into office.

So this is what an equitable recovery looks like.

This is what it means to create opportunity for all.

And historically, we know that women come into the labor market when there are supports for them.

And one of those supports is when the wages are higher and that, you know that there are good jobs of women, women look for work and they’re finding it.

And if we were to have were more affordable in this country, when we see even higher numbers and what would that mean for economic growth?

Yes, I mean, you know, I also will never get tired of citing.

We did a study here that demonstrates that if this country invested in child care, like, truly, you know, affordable reliable child care, which we know remains a challenge but also good jobs in child care, which would help with the supply of child care, then it would allow about 5 million more women to come into the labor force.

And that would generate $775 billion of economic activity a year.

So I always say, you know, we can’t just talk about, can we afford child care?

We have to recognize that.

How can we afford not to invest?

Secretary?

Thank you so much as always for so, so wonderful on the May jobs data.

We’re joined by Lauren Goodwin, who is the New York, life investments economist and chief market strategist and Robert Sin, who is the city senior global economist.

Both joining us now here in studio.

Great to see you and thanks so much for joining on what is a better than expected print uh far exceeding what the expectation was coming into this, Lauren.

And you said in your notes, uh bad news is not bad news yet.

Well, this is good news and for the markets, it’s turning out to be bad news at least in the pre market trade.

Yeah, that’s right.

I think the market as well as the fed, we’re hoping to see a little bit of evidence of softening in the labor market because the other side of the fed’s mandate, inflation just doesn’t stack up against cuts this at this stage in the cycle and to see more confidence that inflation could move lower over time, you’d really like to see the wage numbers look a little lower than we’ve seen them today.

And so this is good news for the economy, markets have been very focused on growth.

So I think that given the earnings backdrop in the economy, we can continue to see the markets take this in stride.

Um But I expect that it will have a major impact on the Fed’s decision next week.

Um likely to, to price in fewer um interest rate cuts for the remainder of this year.

How do you think this shapes the Fed’s narrative?

It’s a, it’s a great question because I think what we’re living through is the challenges of judging the economy in real time with a very mixed set of signals from these data.

So much stronger than expected job growth.

Typically, I would say payrolls is the best indicator of the underlying health of the labor market.

So that’s really good news.

You’re getting some more soft prints within the household survey.

So the unemployment rate’s been ticking up.

Uh But maybe that survey isn’t capturing the large migration flows that we’re seeing in the economy as well as the payroll survey is.

So maybe there’s more noise than signal there.

But at the same time, a third factor as Lauren pointed out that very hot wage growth and we’re still seeing inflationary pressure is in the services sectors that are more wage intensive.

Um So it’s a mixed bag for the Fed.

They’ll be happy the economy is holding up well, but probably we’re looking for some more slowing and some more cooling especially on the labor wage side.

So then Robert, what do you think that tells us about the fed’s timeline for cutting?

Because city for a long while, has held that view that the fed would likely cut in July.

Is that still on the table?

The um, our US team still has that July cut kind of based on two factors.

One, a softening in the labor market, enough of a softening really that the FED is getting worried about recession, risk and enough cooling in the inflation numbers to justify cuts and then putting more weight on the on the uh employment side of the mandate.

I think here with very strong payrolls and hot wage growth, it’s gonna really challenge that, that call of July, but that’s what it’s based on.

It’s not dead in the water yet.

But that’s a, that’s a tough print for that call.

Lauren.

Can the, can the markets continue to see all time highs if we don’t see the data line up in terms of what would actually uh what would warrant a cut for the Fed?

I think it’s challenging on the tactical front.

So until we have another round of data, we get inflation data on Wednesday, another employment report in another month.

But with the way that the data sits today, it’s challenging to see markets climb infinitely higher earnings season is behind us.

The markets have seen better than expected results on that front.

And as Rob points out, this is frankly a better than expected economic front still.

But it’s one in which I think the conversation in the market is going to begin to turn towards how much longer if the fed holds interest rates where they are, uh, can the underlying economy avoid broader cracks?

We’re starting to see cracks in lower income consumers in elements of the credit markets, especially in floating rate credit that have been absorbed relatively well so far.

But the longer you stay in an environment like this, the the higher the risk becomes that a future credit cycle would be more pronounced.

What do you think?

Do you agree?

Just in terms of some of the cracks that are starting to form?

Absolutely.

I completely agree with Lauren.

We’ve been highlighting the same type of cracks, lower income consumers and you’re seeing that manifested in higher subprime delinquencies drained excess COVID savings that most of those savings still seem to be concentrated.

Now, at the higher income end of the spectrum, ongoing tightening credit conditions and we credit to.

And so all of these factors are in play right now though the economy is held up surprisingly well, given those strains.

So I would still um note them as yellow warning signs rather than red, but they’ve been yellow warning signs for over a year.

And the longer we stay at these restrictive levels, uh the higher probability those cracks grow into something more insidious.

Does the Fed over do, do they risk overrunning higher for longer here?

I think that’s, I think that’s a real risk and they’re really walking a very delicate type rope here.

They feel that they’re restrictive.

They feel they haven’t seen enough progress on inflation, but, you know, the longer that they hold things here, the more those cracks that we talked about develop.

Um And that’s really why, um if we were seeing a deeper weakening in the labor market as our US team thought for this report and things will happen going forward, that they’ll be quick to react to that because they are worried, I think about how long they can stay here.

Um So yeah, it really, it really, the longer we stay at this place, the more challenging that trade off becomes for the Fed and Lauren to put your strategist hat on.

Again, I’m curious just in terms of what this means for investors, for our viewers out there, in terms of some of the pressure that we could see on the broader markets here.

Clearly, we’re seeing that reaction play out uh in in futures activity right now.

But that longer term impact.

How do you see that play?

And what are some of the things that investors need to be?

I guess looking for over the next coming weeks?

I’m so glad you asked because I think that the fact that we’re likely to see some market weakness today really isn’t a decision making factor for most investors.

And the fact of the matter is that when the economy starts to slow, that can still be a very constructive time for risk assets because of the dynamic where if you see interest rates coming down later in the year that you get, you have some expected boon from that activity.

What we’re doing from an investment perspective is acknowledging that risk assets probably do have more room to run in this late stage of the cycle until jobless claims really start picking up.

We don’t tend to see the market react in a recessionary manner and we’re not seeing recessionary data today in the environment though that we have where valuations are high.

We think that this sort of late stage cycle is a really good opportunity to balance.

So take some gains in large cap us growth equity, deploy them in international equity, maybe even deploy them in fixed income, which is one of our favorite plays because you can take some equity like risk in asset classes like high yield while gathering a high coupon with rates at the levels that they are.

All right, Lauren Goodwin, New York Life, investments economist and chief market strategist, along with the Roberts and a city senior global economist.

Thank you both for joining us here today.

Talk about the, the impact that immigration is having on the US economy and the jobs market.

The US adding 272,000 jobs in the month of May those recent job gains coinciding with a huge pick up that we’re seeing in immigration.

Now to put this in perspective, immigrants now make up over 18% of the US workforce.

Now this comes as there has been this battle playing out inside DC about how exactly to address immigration issues in April.

The number of encounter at the southern border remained near its highs of 100 and 80,000.

So let’s talk about what this means for the USA labor market.

For that.

We wanna bring in Wendy Edelberg and be a Hamilton project director in Brookings Institution, senior Fellow in Economic Studies, Wendy.

It’s great to have you here.

So first, let’s just take a step back and I think if you could lay out for us just the impact that immigrants are having on the US workforce right now.

And ultimately, the impact that that is having on the economy.

Thanks for having me.

So it to, to understand today’s labor market, you have to understand what’s happening with immigration.

The surge in immigration has radically changed the labor market numbers that we’re seeing.

So think about it this way before the pandemic.

Uh And in fact, really before the congressional budget office did the hard work to figure out really what was happening with immigration in the past couple of years, we thought that immigration would running in 2022 2023 2024 about a million people.

So uh that is to say CBO thought that immigration in 22 and 23 would be about 2 million in total.

Instead, they now estimate it was about 5.5 million people in total.

That’s a very large difference.

And what that means is that the labor supply has been growing much faster than we anticipated.

And you know, if you’re an economist who’s been looking at the labor market all this time, you probably thought in the back of your mind that a stable payroll employment number that didn’t have inflationary pressure in it might be something like 75,000 a month, maybe if you were super optimistic, you thought it was like 100 and 20,000 a month.

Now, given the surge in immigration, a stable employment number is more like 200,000 a month.

So basically take whatever you thought you understood about the labor market before and double it.

And what that means is that today’s number is still super strong, but it’s not like wildly off the charts, unprecedentedly strong.

It makes a lot more sense once you understand what’s been happening to labor supply and Wendy, we got an executive order this week on immigration.

It’s likely that there perhaps isn’t much effect that’s going to have.

I mean, many who were discussing it and really looking through it were saying it, it might be the essence of a nothing burger because of the fact that you still have so much that still needs to be done on a, on a policy perspective here that’s really gonna require both sides of the aisle coming together.

What is the net effect as it relates to employment though?

So it depends what your frame of reference is.

So first, let, let’s step back a second and say that this executive order will likely be challenged in the courts.

So that would certainly make it a nothing burger if the courts strike it down, if it is implemented.

Exactly as written, my sense is that it would reduce the number of asylum seekers coming into the country who are allowed to work here legally.

After a certain number of months, it would reduce that by a third.

So that’s not nothing but that’s not a completely different labor market.

But where I definitely want to temper expectations and where you’re right to be cautious about thinking about the fact, you know, how much this executive order is going to affect the economy where I really want to temper expectations is what it will do to the economy in the very near term.

What we’re gonna be seeing in the labor market over the next month, over the next four or five months is very much determined by what’s been happening to immigration since 2022.

There’s a lot of labor supply growth still in train.

So even if the executive order is implemented exactly as written over the next handful of months, we’re not going to see a big effect on the aggregate US economy.

When do you, uh when you talk about the responsibility here of immigrants, enabling the US to avoid a recession?

Is that in fact true, just given the fact of how strong the US labor market has remained, the fact that the labor, the labor market remains very tight, the fact that yes, wages have increased, but maybe not at the pace that they maybe would have if you didn’t have uh the population of the immigration population as we do today, I guess, put that in context for us.

Yeah, there, there are two interesting points of comparison here.

So one is taking the labor market that we saw in 2223 the first half of 2024 and trying to understand it with and without immigration.

If you try to understand it without understanding the surge in immigration, you’re gonna look at that labor market and say it is wildly hot and monetary policy has a lot more to do to get the labor market on stable footing, to make sure inflation comes back down to its target.

That’s one really important point of comparison.

The other point of comparison that I think you more have in mind is what the economy would have looked like without an immigration surge.

Uh That’s an interesting question.

It’s less important for policy for monetary policymakers right now because of course, we did have a surge in immigration.

But nonetheless, it’s interesting to talk about and in that regard, the surge in immigration in 2223 1st half of 24 serendipitously happened at the same time that we saw a surge in labor demand from firms as the economy was reopening.

So remarkably, the economy has been able to absorb the surge in immigrants.

If we think narrowly about what’s happening in the aggregate labor market, it’s been able to absorb this surge in immigrants uh without a whole lot of, you know, disruption.

Um the labor market has expanded in terms of supply.

And at the same time, we’ve seen an increase in labor demand that’s been able to hire all these people.

The labor market is very strong, both for foreign born workers and for native born workers, Wendy, we only got about 45 seconds left here.

But as it relates to the States and, and small businesses specifically that are looking for labor right now and, and are saying that there are shortages right now in labor, what states could actually benefit most from immigration as that is an input into the labor situation.

So I think what, what we’re seeing is that the labor market is probably expanding just where the immigrants are coming in.

So remarkably, that actually seems to be shaking itself out pretty well.

We’re seeing stronger employment gains where the immigrants are going.

And in fact, the Hamilton just did an analysis of where we’re seeing uh the surge in immigration go state by state.

What’s really important there is to think about the fiscal effects on those state governments and the local governments.

That’s really where the, where the local issues are massive beat of four jobs.

272,000.

The estimate was for 100 and 80,000 when you take a look at the unemployment rate ticking higher to 4%.

So that was 1/10 of a percent higher than what we saw the pre the prior reading and 1/10 of a percent higher than what the street had been forecasting average hourly earnings on a month over month basis taking higher by 4/10 of a percent.

When you take a look at that year over year comparison rising 4.1% hotter than what the street had been anticipating labor force participation rate coming in at 62.5% which is just below what the street’s expectation was.

And also comparing it to that prior reading of 62.7%.

So again, a much hotter than expected print here when you take a look at some of the revisions that we are getting revisions here to the downside for the prior month.

100 and 75 was revised lower to 100 and 65,000.

So revised lower by just about 10,000 here.

But again, that headline number 272,000 much hotter than the streets expectation of 100 and 80.

Yeah, I’m taking a look at some of the sectors here.

Employment continues to trend up in several industries led by health care, government, leisure and hospitality, and then professional, scientific and technical services as well here.

And then just taking kind of a, a bit of a deeper dive into what you’ve mentioned here.

The labor force participation rate 62.5% here.

That was essentially li little change there in May.

And then long uh one of the other huge things that we got to point out to here as I was continuing to look at of those sectors, health care, adding 68,000 jobs during the month of May, we have more of a breakdown in the sectors in just a little bit.

Yeah.

And, and this could potentially be concerning for the fed on a number of fronts.

But I think more important.

Um One of the most important reasons here when you take a look at that headline number clearly much stronger than expected.

When you take a look at the fact that the unemployment rate ticking up as well as that labor force participation rate falling clearly, that could be a bit worrisome here for the fed ahead of the media.