A Walk Through Today’s Strong Jobs Report

As I wrote the other day, the economic recovery really all boils down to jobs. With multiple weak indicators across the board and a poor March jobs report, many wondered: was the recovery continuing, or were we in the first stages of another slowdown?

Based on the U.S. jobs data this morning, I would say that the question has been answered—and the recovery continues. Beyond the healthy headline number, the jobs report offers additional details that suggest the recovery is likely to accelerate.

Job creation spikes

280,000 jobs were created in May, well above the 225,000 expected by most economists. It was also revealed that an additional 32,000 jobs were created in the previous two months, effectively adding 312,000 jobs to what we thought we had yesterday.

Job growth was widespread as well. Manufacturing, which has been suffering from the weak dollar, rose by 7,000 jobs, up from 1,000 the previous month and well above expectations of 5,000. Private employment rose by 262,000, up from 206,000 the previous month and beating expectations of 220,000.

Wage growth picks up

Strong job growth, as welcome as it is, hasn’t been the problem, however. That would be wage growth, and here we saw some good news as well. Average hourly earnings rose by 0.3 percent, up from 0.1 percent the previous month and beating expectations. On a yearly basis, wages were up by 2.3 percent, an increase over the previous month.

Although still not great, the trend is moving in the right direction, and other indicators show even faster growth.

Unemployment rate isn't bad

Even the gray lining in the data has a silver tinge. The unemployment rate rose slightly, from 5.4 percent to 5.5 percent, but that was because almost 400,000 people moved back into the labor force, bringing the participation rate up to 62.9 percent.

Recovery seems primed to accelerate

To recap:

• The U.S. continues to create a lot of jobs—more than expected—despite the weak economic news of the first quarter and the headwinds created by a strong dollar.
• Wage growth, though still not where it should be, is moving in the right direction.
• Unemployment remains at healthy levels, even as more people are being drawn back into the labor force as the economy improves.

On top of the strong April jobs numbers, today's employment report indicates that risk of an ongoing slowdown is minimal in the near to medium-term future. In fact, it seems more likely than not that the recovery will continue to accelerate.

That’s good news for everyone, especially as the rest of the world (see Greece and China) continues to look risky.