Businesses are advertising for workers any way they can, including on their equipment. Here, a fuel truck in Richmond, Calif., on a recent day.
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A set of labor market indicators Thursday should give investors some optimism ahead of Friday’s monthly jobs report.
Payroll provider ADP said private payrolls increased by 978,000 last month, far surpassing the 650,000 rise economists polled by FactSet had predicted. Companies hired at the fastest clip since August as the service sector comes back to life; the leisure and hospitality industries represented almost half of overall hiring in May.
First-time claims for jobless benefits, meanwhile, fell to yet another pandemic low. The number of people filing for unemployment insurance fell 20,000 in the latest week, to a seasonally adjusted 385,000. Economists expected a smaller decline to 395,000. The four-week moving average for the series, which helps smooth out some of the volatility in the weekly employment indicator, also fell to a new pandemic low of 444,000. For context, that measure compares with monthly averages of 621,000 and 722,000 in April and March.
The drop in weekly claims since April has been quick and steady. With many companies struggling to find workers, the risks of prematurely letting people go is rising, says
Ian Shepherdson
of Pantheon Macroeconomics. “The downward trend has been relentless in recent months, and a return to the pre-Covid level, in the low 200s, over the summer seems a decent bet,” he says.
Taken together, the ADP and jobless claims reports suggest investors have reason to believe hiring in May was solid. Economists are looking for the Labor Department to report a nonfarm payroll increase of 655,000, up from 266,000 a month earlier.
There are reasons for optimism to be tempered, though. Labor shortages that led to April’s disappointing nonfarm payroll print haven’t eased. While payrolls tend to rise more quickly when jobless claims are falling fast, the relationship between firing and hiring is weaker now because of the large number of people sitting out of the labor force, Shepherdson says.
While first-time claims are dropping sharply, continuing claims remain more stubborn. Claims for ongoing benefits rose to 3.77 million in the most recent week from 3.6 million a week earlier. Economists expected little change in the series. The separate Pandemic Unemployment Assistance program, which includes gig workers, self-employed individuals not eligible for normal unemployment benefits, still counts more than 6 million recipients, notes MFR’s Josh Shapiro.
A third labor market indicator released Thursday gives more reason for cautious optimism. The Institute for Supply Management’s service-sector report for May hit a record high—the index came in at 64, up from 62.7 in April and above the expected print of 63. Hiring continued for the fifth consecutive month, but at a slower pace than in April. That’s another reminder that growth might be even stronger if not for shortages of labor and other inputs.
To the extent enhanced unemployment insurance is behind the labor shortage, the bottleneck may start to ease this month. Maryland became the 25th state to opt out of the $300 federally funded enhancement to weekly jobless benefits ahead of the program’s September expiration. Based on this morning’s claims data, says
Nancy Vanden Houten
of Oxford Economics, 4.1million people will lose the extra $300 in weekly payments—and more than half of those will lose all benefits—this month and into early July.
Write to Lisa Beilfuss at [email protected]
