May 2010 Employment Report: Private Sector Hiring Stalls

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Total non-farm payroll employment grew by 431,000 in May, reflecting the hiring of 411,000 temporary employees to work on Census 2010, the U.S. Bureau of Labor Statistics (BLS) reported. Private-sector employment changed little (+41,000). Manufacturing, temporary help services, and mining added jobs, while construction employment declined. The unemployment rate edged down to 9.7 percent – not because of a dramatic increase in hiring, but rather because 322,000 workers dropped out of the labor force.

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Some forecasters had predicted private-sector employment to grow by as much as 180,000 jobs, so the 41,000 figure was a disappointment. "This shows the recovery continues but at a modest pace. Expectations going forward are going to be tempered," said Boris Schlossberg, director of research at GFT Forex in New York.

Census employment is distorting payroll figures, particularly in light of claims that some enumerators are being repeatedly hired and fired – thereby inflating the impact of Census hiring. Thus, changes in private sector payrolls are a better gauge of the labor market’s health.

Average workweek length and hourly earnings provide other perspectives of labor demand. In May, the average workweek for all employees on private non-farm payrolls increased by 0.1 hour to 34.2 hours. Average hourly earnings of those same workers increased by 7 cents (0.3 percent), to $22.57. Both of these metrics demonstrate a considerable amount of residual slack in the labor market.

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It is important to note that without the 215,000 jobs added from Current Employment Statistics (CES) models, private sector employment would have shrunk by 174,000 instead of expanded by 41,000. The BLS uses the CES models to account for business closings and openings that occurred recently enough that they were not captured in the employment survey. Because these numbers are statistically derived, many analysts refer to them as “ghost” jobs. Those models do no always perform well, so their results should be taken with a grain of salt.

To wrap up: Adding the 411,000 temporary Census jobs to the 31,000 private, temporary help-service hires implies that the U.S. economy may actually have lost 11,000 permanent jobs during May.