U.S. job growth likely picked up in May, worker shortages still a challenge

  • Nonfarm payrolls forecast to increase 650,000 in May
  • Unemployment rate seen falling to 5.9% from 6.1%
  • Average hourly earnings forecast up 0.2%; workweek steady

WASHINGTON, June 4 (Reuters) - U.S. job growth likely accelerated in May as vaccinations eased the pandemic's grip on the economy, but companies faced difficulties hiring, with millions of unemployed Americans at home because of childcare problems and generous unemployment checks, leaving open the chance for another letdown in job creation.

The Labor Department's closely watched employment report on Friday could offer assurance that the recovery from the pandemic recession was on track after worker shortages also blamed on lingering fears over COVID-19 sharply restrained employment growth in April, which delivered roughly a quarter of the new jobs economists had forecast.

Slower hiring stirred debate among some economists that growth was stagnating at a time when inflation was rising.

"With the reopening of the economy, we should be seeing very strong job growth," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "The supply constraints are problematic, but it doesn't mean that's going to prevent the economy from continuing to recover. The U.S. is not experiencing stagflation and it won't over the next few years."

According to a Reuters survey of economists, nonfarm payrolls likely increased by 650,000 jobs last month after rising only 266,000 in April. That would leave employment about 7.6 million jobs below its peak in February 2020.

Estimates in the survey ranged from as low as 400,000 to as high as one million jobs. Employment gains have averaged 451,000 jobs per month this year, supported by massive fiscal stimulus as well as the improving public health.

The unemployment rate likely fell to 5.9% from 6.1% in April. The jobless rate has been understated by people misclassifying themselves as being "employed but absent from work."

At least half of the American population has been fully vaccinated against COVID-19, according to data from the U.S. Centers for Disease Control and Prevention.

That has allowed authorities across the country to lift virus-related restrictions on businesses, which nearly paralyzed the economy early in the pandemic. But the reopening of the economy is straining the supply chain, limiting production capacity at factories as well as in the services industries.

There are a record 8.1 million job openings. Millions of workers, mostly women, remain at home as most school districts have not moved to full-time in-person learning. Despite vaccines being widely accessible, some segments of the population are reluctant to get inoculated, which labor market experts say is discouraging some people from returning to work.

Government-funded benefits, including a $300 weekly unemployment subsidy, are also constraining hiring. Republican governors in 25 states are terminating this benefit and other unemployment programs funded by the federal government for residents starting next Saturday.


These states account for more than 40% of the workforce. The expanded benefits will end in early September across the country. With businesses across industries reporting difficulties finding workers, May payrolls could disappoint.

The Federal Reserve's "Beige Book" report of anecdotal information on business activity collected from contacts nationwide on or before May 25, showed on Wednesday that "it remained difficult for many firms to hire new workers, especially low-wage hourly workers, truck drivers, and skilled tradespeople." The Institute for Supply Management's measures of manufacturing and services industry employment fell last month.

Though first-time applications for unemployment benefits dropped below 500,000 in mid-May, the number of people on state unemployment rolls barely budged. A survey from the NFIB on Thursday showed a record 48% of small business owners reported unfilled job openings in May.

But job growth could also exceed expectations. Households were very upbeat about the labor market in May. The National ADP employment report on Thursday showed private companies hired the most workers in 11 months in May. The ADP report, however, has a poor track record predicting the private payrolls count in the Labor Department's employment report.

"The critical questions in the employment report will be how many workers did employers manage to entice back into the workforce last month and how much did they have to raise wages to achieve this," said David Kelly, chief global strategist at JPMorgan Asset Management in New York.

Average hourly earnings are forecast rising 0.2% after shooting up 0.7% in April. That would lift the year-on-year increase in wages to 1.6% from 0.3% in April. There is anecdotal evidence that companies, including restaurants, are raising wages to attract and retain workers.

Postings on Poachedjobs.com, a national job board for the restaurant/hospitality industry, showed restaurants offering as much as $30-$35 per hour for lead line cooks.

Sustained wage growth could strengthen the argument among some economists that higher inflation could last longer rather than being transitory as currently envisioned by Fed Chair Jerome Powell. The government reported last Friday that a measure of underlying inflation tracked by the Fed for its 2% target accelerated 3.1% on a year-on-year basis in April, the largest increase since July 1992.

Still, most economists do not expect the U.S. central bank to start withdrawing the massive support it has offered to the economy anytime soon.

"The Fed will likely be willing to ride out that storm, but it could be a very tension-filled period for the monetary authorities," said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania.

The average workweek likely remained at a high 35 hours. With more people vaccinated and schools fully reopening in the fall, the worker scarcity should ease by September.

Reporting by Lucia Mutikani; Editing by Andrea Ricci

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