Stunning May Employment Numbers Point to Instability, Uncertainty

It seems as though employment numbers have turned into a bit of a roller coaster lately. At the end of last year, numbers reached a recent monthly peak at around 300,000 jobs created. Since the beginning of 2016, however, despite an apparently healthy if not roaringly robust economy, jobs numbers have declined pretty steadily.

The roller coaster hit a breathtaking dip in May. According to the numbers release this morning by the U.S. Bureau of Labor Statistis, only 38,000 new jobs were created last month (ignoring the 35,000 Verizon workers then on strike, according to a quote in this CBS News story). March and April employment numbers were also revised downward, from 208,000 to 186,000 March jobs (-22,000 jobs) and from 160,000 to 123,000 April jobs (-37,000 jobs).

Thus, over the immediately preceding three-month period, the economy as a whole has produced only 116,000 new jobs monthly, a far cry from the averages of between 200,000 and 240,000 that we saw in 2015. And the May plunge is startling: There hasn't been a new jobs number that low since September 2010.

At the same time, unemployment dropped from 5 percent to 4.7 percent. A decline in this figure is generally perceived as being good news. This time, however, the drop-off may be attributable to unemployed workers exiting the work force, rather than an under-supply of willing persons actively seeking work.

To underscore this worrisome assessment, the civilian labor force participation rate also dropped by 0.2 percent, from 62.8 to 62.6 percent for May. The figure has now dropped for the past two months, and has wiped out gains made in the first quarter of 2016. The current labor force participation rate is lower than most economists would like it to be.

From an industry sector point of view, health care remains the only consistent bright spot, with 46,000 jobs added in May (more than the total job growth across all sectors, indicating losses from all other sectors combined for the month). How did Willie Nelson put it? Let 'em be doctors and lawyers and such ...

Because of the Verizon strike, IT-encompassing information sector took a massive hit of 34,000 jobs for the month (which indicates weak job growth of only +1,000 jobs for May, assuming that all of those Verizon workers return to their jobs once the strike is settled).

Other down sectors include mining (-10,000 jobs), and manufacturing (-18,000 jobs). Professional and business services added +10,000 jobs for May, while remaining sectors were more or less flat (construction, wholesale trade, retail trade, transportation and warehousing, financial activities, leisure and hospitality, and government).

With the Fed getting ready to ponder interest rates, the unstable employment outlook muddies the picture considerably. Most labor pundits assert that it's highly unlikely a rate hike will occur, given the sudden deflation of employment and concomitant prospects for economic growth. Looks like we're back in a holding pattern.

I expect markets to hold their breath for some time, as everybody tries to figure out if this is a blip or the beginning of a new and unwelcome downward trend for employment and growth. Buckle up, folks: The roller coaster could still have one or two more massive ups and downs to traverse before the ride smooths out!