US: Labor market's recovery has entered a tricky phase

In May, job growth totaled 559.000, below market expectations. According to analysts at Wells Fargo, May's jobs report confirmed that the biggest challenge to the labor market's recovery is labor itself.

Key Quotes:

“Job growth disappointed again in May, coming in at 559K. The upward revision to April payrolls was negligible (+12K), showing that the slowdown this spring is not a fluke. Job openings according to Indeed.com rose further above their pre-pandemic baseline in May and small business hiring plans hit an all-time high, but record demand for workers does not do the economy much good if businesses cannot fill those positions.”

“Despite record demand for workers, the labor market's recovery has entered a tricky phase. Businesses have reopened faster than workers are able and willing to return to work. More than a year on from the start of the pandemic, a declining share of unemployed workers are on temporary layoff, meaning businesses and job-seekers must make new connections. That takes time.”

“We expect job growth to continue at what would at any other time be considered an impressive pace of growth. Factors constraining the supply of workers have started to or will soon abate.”

“The past two months of disappointing job gains illustrate that the jobs recovery is likely to be more drawn out than previously thought. With payrolls still 7.6M below their February 2020 peak, a full recovery looks unlikely until late 2022 or even early 2023. The more moderate pace of hiring will keep the Fed waiting a bit longer for "substantial further progress" on the labor market front, although firming wage pressures suggest the Fed may need to broaden out its definition of progress.”

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