Here is what you need to know about Friday’s interesting, if not confusing, US jobs report:
Job creation disappointed: The 38,000 jobs created in May fell well short of consensus expectations of around 160,000. In addition, the Bureau of Labor Statistics revised its estimates for prior months downwards by 59,000. Put the two together and you get a highly unusual negative net number for the combined multi-month number released this morning.
Despite disappointing job creation, the unemployment rate fell to 4.7%: This is the lowest jobless rate since November 2007. The driver was a fall in what, already, was an historically low labor participation rate. At 62.6% (down 0.2 percentage points for the month), the participation rate is very near all-time historic lows.
Part time employment numbers also point to less labor market slack: Involuntary part time workers, that is those who would opt for full time jobs were they available, rose by 468,000 to 6.4 million.
Wages continued to grow, albeit at a modest rate: Monthly earnings rose by 0.2% in May bringing the yearly increase to 2.5%.
Bottom line: It’s a weak report at the headline level. Yet the message for policymakers is far from unambiguous as timid job creation is offset by indicators of less labor market slack.
This puts the Federal Reserve in a tricky situation – reducing the probability for a rate hike in June but keeping July very much on the table.
Mohamed A. El-Erian is the chief economic advisor to Allianz, the corporate parent of PIMCO where he served as CEO and co-CIO (2007-2014). He is Chair of President Obama’s Global Development Council and the author of two New York Times Best Sellers: the 2008 “When Markets Collide” and this year’s “The Only Game in Town.”