The May Employment Report was mixed. As expected, payrolls were boosted by a sharp rise in temporary jobs for the 2010 census (up by 411,000, to 564,000 – most of these jobs will be shed by October).

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Weekly Commentary by Dr. Scott Brown
The Job Market Outlook – Recovery Still On Track
June 7 – June 11, 2010
The May Employment Report was mixed. As expected, payrolls were boosted by a sharp rise in temporary
jobs for the 2010 census (up by 411,000, to 564,000 – most of these jobs will be shed by October).
However, the private-sector payroll gain disappointed, rising by only 41,000. That’s not a disaster. It’s
consistent with a moderate economic recovery. There were some promising elements to the report, but
nothing to suggest that the labor market will be booming anytime soon.
The disappointing 41,000 gain in private-sector payrolls followed relatively strong gains in March
(+158,000) and April (+218,000) – leaving the three-month average at +139,000. That’s not bad. Prior to
seasonal adjustment, private-sector payrolls rose by 711,000 – the strongest May increase since 2006. Note
that the May unadjusted increase followed a 727,000 rise in March and a 1.055 million gain in April.
Should the slowing in adjusted payrolls continue into June, then one might become a lot more worried.
However, the recent trend in private-sector job growth looks fine at this point.

2. Nonfarm payrolls remain below where they were a decade ago. The three-month average gain in private-
sector payrolls is roughly consistent with steady-state economic growth – that is, just enough to keep the
unemployment rate steady over time (or equivalently, enough to absorb the growth in the working-age
population). We need to see much stronger job growth to push the unemployment rate down significantly.
A back-of-the-envelope calculation suggests that if payrolls were to rise by a strong 250,000 to 300,000 per
month, it would take 6 or 7 years to push the unemployment rate back to 5%. Real GDP growth of around
3%, which is roughly the consensus view for the next few quarters, is not going to cut it. On the other hand,
it’s much better than where we were a year ago.
The details on the May employment report suggest mixed conditions across industries. Manufacturing
continued to add jobs, but there were job losses in construction and retail trade. State and local government
payrolls fell by 22,000 – consistent with the theme that budget constraints are resulting in a near-term drag
on overall economic growth.
So what was positive? Average weekly hours continued to trend higher. Average weekly earnings rose
0.6%, up 2.8% y/y (in comparison, the Consumer Price Index rose 2.2% over the 12 months ending in
April). The index of aggregate private-sector payrolls (a measure of total wage income) rose 0.7% in May,
a 3.0% increase since October. Wage income growth provides more sustainable support for consumer

3. spending growth.
The economy faces a number of headwinds in the near term. One of the most important, in terms of the job
market outlook, is the weakness in lending to small businesses. Small business credit was hit especially
hard during the economic downturn, and lending has been reduced through changes in both supply and
demand for such loans. Lending to small businesses should improve over time, but it’s going to take a
while.