May Economic Reports Show More-of-the-Same for U.S.
Guest blog by Dr. Tom Cunningham, Economist and MST Advisory, Senior Advisor- Economics
The June 2nd jobs report for May from the Bureau of Labor Statistics was disappointing. Headline unemployment (U3) ticked down slightly (4.3% from last month’s 4.4%), but the pace of hiring was well below what was expected. In May, 138,000 jobs were added, against an expectation of about 185,000.
A slight decline in the labor force participation rate was largely responsible for the small move in the headline U3 rate. While there wasn’t much movement this month, taken by itself an unemployment rate of 4.3% is a clear measure of strength. The broader measure of labor underutilization, U6, fell from 8.6% to 8.4%, so the gap between the two measures continues to slowly close. Overall hourly earnings continue to rise at their 2.5% pace, and the average workweek was unchanged.
In contrast to the unemployment data, the payroll data was lackluster (the two data sets are gathered separately – one from households and the other from employers). The 138,000 jobs created for the month was well below the last year’s monthly average of 181,000. Hiring continued in business and professional services, health care, eating and drinking establishments, and even mining showed a small increase. Other sectors were flat. Given the economy’s demographics, this month’s hiring is still enough to essentially maintain the current unemployment rate, but more was hoped for.
Last week’s upward revision to Q1 GDP growth was a pleasant surprise. This morning’s release tempers that optimism. It looks like we’re on the more-of-the-same track that the economy has been on for a while.
About the Author
Tom Cunningham holds a Ph.D. in economics from Columbia University and was senior economist with the Federal Reserve Bank of Atlanta from 1985 to 2015. Mr. Cunningham serves as a consultant to MST in the creation and ongoing development of the MST Virtual Economist and is the MST Advisory economics specialist.
Why should lenders consider the monthly jobs report?
As employment is a key factor in projecting loan portfolio performance, current employment statistics and longer term trends are likely to be primary considerations for most banks and credit unions as they incorporate forward-looking economic factors in their ALLL estimations under the CECL accounting standard.
How can lenders consider economic factors in estimating their reserves?
Under the new accounting standard, CECL, financial institutions will be required to consider economic factors in estimating their reserves. The MST Virtual Economist is an efficient, automated way to evaluate qualitative economic factors and project their impact on the institution’s loss rate, find new variables that impact the loss rate and determine the relevance of the economic factors you are already using to make qualitative adjustments. Click here for more information or to schedule a demonstration.
