US May Have Seen Massive Rehiring In May Despite Labor Troubles

The key US government jobs report Friday is expected to show American businesses added hundreds of thousands of jobs last month as vaccines helped the economy return to normal -- but with Covid-19 still keeping some people away from the workplace, strong rehiring is no sure thing.

Economists expect the Labor Department data will show the world's largest economy added 720,000 jobs and the unemployment rate ticked down to 5.9 percent in May, a consensus supported by positive data released this week.

Payroll services firm ADP boosted the upbeat sentiment when it said private employers added a huge 978,000 jobs last month, while the Institute for Supply Management (ISM) reported its index gauging the health of the service sector, a key employer, hit an all-time high in May.

In addition, weekly data from the Labor Department showed new unemployment aid applications dropped below 400,000 last week for the first time since the pandemic sent them soaring into the millions in March 2020.

"It is all coming together, as the pandemic fades and businesses reopen, and workers are starting to see the benefits," economist Joel Naroff said.

However, continued fears of the virus, the availability of generous government unemployment benefits in some states and workers' continued difficulties accessing childcare, public transportation and education have created labor shortages.

Ian Shepherdson of Pantheon Macroeconomics predicted jobs gains of only 550,000, saying the hesitation of some people to rejoin the labor force undermines both ADP's model and the usual trends associated with falling jobless claims.

"Payrolls tend to rise more quickly when claims are falling fast, but the relationship between firing and hirings is weaker now because of the large number of people choosing not to participate in the labor force," he said in an analysis.

Outside the labor market, there is little doubt that the world's largest economy is climbing out of the hole the pandemic pushed it into last year, aided by a nationwide Covid-19 vaccination campaign.

The economy expanded 6.4 percent annualized in the first quarter of this year, one of its fastest paces ever, and US growth is expected to be among the world's strongest this year.

However, the process of bringing business and trade back online after months of restrictions meant to stop the virus has proven complicated.

Prices have started rising, a consequence of both shortages caused by global supply chain issues and pent up consumer demand, especially in sectors they shunned when the virus was rife.

The April unemployment report was unexpectedly weak with only 266,000 jobs added and the unemployment rate ticking down slightly to 6.1 percent.

"That led to all sorts of handwringing about the expansion weakening. Tomorrow, those fears should be excised by not just a robust increase in total employment, but also a solid gain in wages and a major drop in the unemployment rate," Naroff said.

While he gave no forecast for the May report, he predicted it could be exceeded in future months as more states allow businesses to fully reopen.

Shepherdson said the jobs gains are unlikely to shake the Federal Reserve from the easy money policies meant to fuel the recovery, or cause an increase in borrowing costs.

"May payroll growth probably was not strong enough to scare the Treasury market, or to suggest to the Fed that labor shortages are easing appreciably," he said.