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Steady Growth in Jobs, So Look for Fed Tapering Soon



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The labor market continues to move forward at a steady pace. Nonfarm payrolls increased 175,000 in May, while private-sector payrolls grew by 178,000. Meanwhile, civilian employment, an alternative measure of jobs that includes small-business start-ups, rose 319,000.

Although the unemployment rate ticked up to 7.6 percent, the “unrounded” figure was 7.555 percent, so it was very close to a steady 7.5 percent headline, and the increase in the jobless rate was due to the labor force’s growing by 420,000. In the past year, the labor force is up by 550,000 while the unemployment rate has declined 0.6 percentage points.

Total hours worked were up 0.1 percent in May, revised up for April, and up 2.2 percent in the past year. In combination with a 2 percent gain in average hourly earnings in the past year, total cash earnings are up 4.2 percent. After adjusting for inflation, these earnings are still up more than 3 percent from a year ago. In other words, working people are generating more purchasing power, consistent with my firm’s view that consumer spending will accelerate over the next couple of years.

Together, these data forcefully reject the theory that the federal government’s spending sequester is hurting the labor market. Since the sequester went into effect, private payrolls are up an average of 163,000 per month, while government jobs (excluding the Post Office, which wasn’t effected by the sequester) are down 1,000 per month. In the same three months a year ago — March through May 2012 — private payrolls were up an average of 160,000, while government (again, excluding Post Office) was down an average of 11,000. In other words, private job growth is better this year overall.

The big question for financial markets is how the Federal Reserve reacts. My firm thinks today’s numbers support the case that it will start tapering its asset purchases in August.



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