Economic Report: A lot is riding on May jobs report after recent U.S. hiring lull. Here’s what to watch

Did hiring surge last month and stamp out all the doubts about the labor market after a disappointing jobs report in April? Probably not, but Wall Street is growing more optimistic.

Here’s what to watch in Friday’s employment report for May from the U.S. Labor Department.

The forecast

Just a week ago, economists were projecting a relatively mild 500,000 new jobs were created in May.

They had good reason to be cautious after April’s employment report showed just 266,000 new jobs — far below Wall Street’s 1 million forecast.

The paltry increase forced economists to revisit their predictions that the U.S. could add 1 million jobs a month during the summer as the coronavirus faded away.

Some of the optimism is returning, though. The Wall Street consensus estimate has crept up to 671,000 , based on a poll of economists by Dow Jones and The Wall Street Journal.

The unemployment rate, meanwhile, is expected to dip to 5.9% from 6.1%. The official rate probably understates the true level of joblessness by 2 to 3 percentage points, economists say, but it’s falling steadily.

Reasons for optimism

Part of what’s fueled renewed optimism is a sharp decline in the number of people seeking unemployment benefits.

They fell to 385,000 last week — the first time they’ve been below 400,000 during the pandemic — and have been cut in half since April.

A strong 978,000 increase in private sectoremployment in May reported by payroll giant ADP has added to the positive tone.

Yet the ADP report often tells one story while the official U.S. employment report tells another. It’s not viewed as a reliable bellwether from month to month.

Doubts remain …

Every survey of business owners and top executives shows a yawning gap between a record number of job openings and people willing to fill them.

Home builders, manufacturers, restaurants, small businesses and many other firms simply can’t hire as many people as they want.

It’s become a big problem with the economy growing rapidly and companies rushing to expand.

“Demand is high and we are struggling to find employees to help us keep up,” said an executive at a computer company.

The shortage of labor has emerged despite still-high unemployment and an economy that has yet to recover 8 million jobs destroyed by the pandemic.

Economists say early retirements, a lack of child-care options, lingering fear of the virus and generous unemployment benefits help explain why more people haven’t returned to work. These problems probably won’t fully clear up until the fall.

If hiring disappoints again in May, those will be the reasons why.

“We suspect employment growth will continue to disappoint over the next few months,’ said senior U.S. economist Andrew Hunter of Capital Economics.

Growing labor force

A key sign the labor market is returning to normal would be a big increase in the number of people who either have a job or are busy looking for one.

The labor force has grown to 160.1 million from a pandemic low of 156.5 million. That’s the good news.

The bad news? The labor force would be around 166 million by now if the pandemic had never happened. That means there’s still a lot of people without jobs who aren’t even looking for work.

The government publishes the job figures at 8:30 a.m. Eastern.

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