The May Jobs Report Highlights Troubling Trends

The May jobs report has put a cap on a week of disappointing economic data. The economy added just 54,000 payroll jobs in the month, and the unemployment rate ticked up a bit to 9.1 percent. Considering the deep job losses of 2008 and 2009, the very large employment base, and the high unemployment rate, 54,000 jobs added isn't that much different than no jobs being added. In a universe of 131 million payroll jobs, 54,000 is a rounding error.

In May, the economy continued to expand. Output and sales rose, albeit at a rate slower than previously expected. So why weren't more jobs created? A couple of reasons. A lack of demand, and a concern about a lack of demand, leads employers to think twice, three times, maybe four times, before hiring new staff. What's more, American companies continue to display ingenuity when it comes to figuring out how to do more with less labor. Two years into the expansion, productivity is still growing at a healthy clip. On Thursday, the Bureau of Labor Statistics revised productivity growth in the first quarter of 2011 from 1.6 percent (at an annualized rate) to 1.8 percent. That may not sound like much. But it means that productivity in the first quarter rose at the same rate the economy expanded. Translation: companies can serve customers and clients without adding new people.

Last month, what I've dubbed the "conservative recovery" continued. The private sector added 83,000 jobs. That's much less than in previous months, but still not catastrophic. The government cut 29,000 jobs. Mitt Romney Thursday kicked off his campaign with a howler, arguing that "we are only inches away from ceasing to be a free market economy." Um, no. The U.S. private sector today employs 1.723 million more people on its payrolls than it did a year ago. By contrast, the government sector at large employs 22.127 million people, down from 22.98 million a year ago, about 853,000 fewer than it did a year ago. Put another way, the private sector in May 2011 accounted for 83.11 percent of all payroll jobs, up from 82.35 percent in May 2010. The profile of the jobs market is changing subtly every month. Going forward, as has been the case for the past year, job creation will come in spite of government action, not because of it.

Another cause for alarm. Every month, BLS revises the numbers initially reported in the previous two months. And the trend has been for the government to discover extra jobs while re-crunching the numbers. Not this month. The March number, revised upward in April to a gain of 221,000, was revised down to a gain of 194,000 jobs. Meanwhile, April's gain, originally reported as 244,000, was reduced to 232,000. The upshot: BLS has concluded that there are 39,000 fewer payroll jobs than we thought existed last month.

You have to dig pretty deep to find good news in the report. Average weekly earnings bumped up a bit, and are up 2.7 percent from a year ago. And data from the establishment survey shows that the relatively healthy job gains in March and April may have spurred some people to get off the sidelines. The labor force grew by 270,000 in May, and has risen by 612,000 since January. But these are some pretty thin straws to grasp.

Daniel Gross is economics editor at Yahoo! Finance

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His most recent book is Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation