Unemployment Rate Highest Since 1994, Payrolls Fell

The unemployment rate rose to 6.1% in May, matching Consensus expectations. It was the highest rate of unemployment since July 1994. Employment fell 200,000 (+0.7% y/y), the third down month this year. The labor force rose 12,000 (+1.1% y/y).

Nonfarm payrolls fell 17,000 in May, slightly less than the Consensus expectation for a 25,000 decline. In the last two months the rate of decline in payrolls eased but payrolls still are down 0.1% year to date. Several changes were introduced to the payroll survey.

The one month diffusion index for nonfarm payrolls dipped to 43.3 and prior months' figures were revised down, suggesting poor hiring prospects. The three month diffusion index did rise to a still low 43.0. By measuring the breadth of hiring increases, these indexes are leading indicators of job growth.

Where Jobs Fell: The number of factory sector jobs fell 53,000 (-0.4% m/m, -4.1% y/y) and are down 1.9% year to date. The one-month diffusion index for the factory sector rose to 28.0 from an April figure that was revised down to 14.9 from 33.8. Retail hiring fell 14,000 (-0.5% y/y). Government employment fell 25,000 (+0.1% y/y). Jobs in the transportation & warehousing industries fell 4,000 (-1.9% y/y) for the fourth decline this year. Jobs also were shed in the leisure, information, and wholesale trade sectors.

Where Jobs Rose: Construction jobs rose 26,000 (1.0% y/y) for the fourth gain this year. Jobs in the financial industries rose 12,000 (1.8% y/y for the ninth consecutive monthly gain. Professional and business services jobs rose 48,000 (-0.0% y/y).

The index of aggregate hours worked (employment times hours worked) was unchanged (-1.5% y/y). So far in 2Q hours worked are 0.4% below 1Q.

Over the last ten years there has been a 59% correlation between the quarterly change in aggregate hours worked and real GDP. That correlation is down from 87% in the 1980s due to the recent acceleration in productivity growth.

Average hourly earnings rose 0.3% following two months of no change.

With the May employment report, several major changes were made including conversion of the payroll figures to the North American Industry Classification System (NAICS), the completion of a sample redesign and the introduction of concurrent seasonal adjustment which updates seasonal factors each month.

For a more complete discussion of these changes, view the press release for today's figures from the Bureau of Labor Statistics.

The nonfarm payroll employment figures are based on reports provided to the US Labor Department by businesses, while the figures from which the unemployment rate is derived are based on a survey of US households.

Employment	May	April	Y/Y	2002	2001	2000
Payroll Employment	-17,000	0	-0.3%	-0.9%	0.2%	2.2%
Manufacturing	-53,000	-90,000	-4.1%	-5.5%	-4.2%	-0.4%
Average Weekly Hours	33.7	33.7	33.9	33.9	34.0	34.3
Average Hourly Earnings	0.3%	0.0%	3.2%	2.9%	3.8%	3.9%
Unemployment Rate	6.1%	6.0%	5.8%	5.8%	4.8%	4.0%