In this edition of our Race, Jobs and the Economy series decoding each month’s Bureau of Labor Statistics (BLS) monthly jobs report, we evaluate the overall state of the economy so far this year.
Analysis of Topline Figures in the May BLS Report
The economy gained 272,000 jobs in May. After staying within the 3.7% to 3.9% range for 9 months, the unemployment rate ticked up to 4.0%.
The industries with the largest employment gains were led by healthcare (+68,000) followed by government (+43,000), leisure and hospitality (+42,000) and professional services (+32,000).
The unemployment rate for most demographic groups changed little from April to May, except for Black male workers. Black men’s experience of the job market continued its recent erratic pattern from month to month, rising from 5.2% to 6.4% – far above the levels observed last winter. This jump caused the unemployment rate for Black workers to increase from 5.6% to 6.1%.
The topline May jobs numbers far exceeded economists’ predictions, prompting Wall Street to interpret the report as a blowout. But that silver cloud has a lead lining: Despite the impressive overall jobs figures, the report is a mixed bag at best. The number of people unemployed and the unemployment rate each increased by 157,000 and 0.1 percentage points respectively. Part-time employment increased and the hiring of temporary workers declined – two shifts seen as a harbinger of labor market weakness in the future.
Troubling Signs for the Economy
As we approach the midpoint of 2024, the economy and the labor market look anxiously toward the future. There is a concern among analysts and economists that the economy is facing severe headwinds with signs of a slowdown.
The Bureau of Economic Analysis (BEA) recently released its estimate on the real gross domestic product (GDP) for the first quarter of this year. Real GDP is the inflation-adjusted value of all goods and services produced in the United States. Think of it like a measuring stick for the health of the economy. BEA estimated that real GDP will increase at an annual rate of 1.3% – an alarming dropoff from the 3.4% annualized growth reported for Q4 of 2023. The projection cited softer spending by both consumers and the government as the primary drivers in the deceleration of real GDP this quarter. This leads to three major challenges for the economy: persistent inflation, slowing private sector jobs growth and consumer spending woes.
Housing Continues to Play a Major Role In Inflation
Despite peaking in the summer of 2022, inflation remains elevated – particularly in the cost of shelter, up 5.5% (versus 3.4% overall inflation). One of the drivers of rising housing costs is mortgage rates, which remain relatively high compared to before the pandemic. The 30-year fixed mortgage rate stands at 6.99%. Without a decrease in mortgage costs, there will be difficulty closing the persistent homeownership gap between Black, Hispanic and White households.
The BLS also tracks the prices renters face if they move to a new housing unit every quarter, in what it calls the new tenant rent index. It has remained stubbornly persistent, with the first quarter of 2024 rate of 5.3% slightly exceeding Q1 of 2022. Rent burdens are a major issue for households, half of whom spend more than 30% of their income on their home – a threshold past which a renter household is deemed “cost-burdened.” The cost-burdened population is disproportionately Black and Hispanic. Renters have also been hammered by the evisceration of low-rent units, with half a million low-rent housing units lost between 2019 and 2022 alone. It is little wonder, then, that the American public consistently rates rent and housing costs among their top concerns.
Job Growth Is Unimpressive
Although the May numbers exceeded market expectations, there are signs job growth is slowing. The most recent BLS quarterly business employment dynamics report found that net private sector employment growth was negative in Q3 of 2023. This means without the government sector, the economy might have lost jobs.
Since the record year of job gains in 2021, the rate of job growth has been declining year by year. Currently, the economy is on track to match the gains made in 2023 – but in large part because the government sector continues to provide a lifeline to the economy. Public-sector jobs are crucial for employment as a whole, but especially so for communities of color, as the government is a large employer of Black and Hispanic workers.
The total number of job openings reached a new three-year low in April, with 1.2 jobs available for every job seeker, the lowest ratio since June 2021. Despite the relatively low unemployment rate – which is usually a sign that workers have an advantage in the job market – this tight ratio of jobs to job-seekers implies tough job competition among applicants.
Consumers Are Turning Increasingly Sour
Real consumer spending growth is forecasted to decline over the current quarter. Real disposable income is already growing at its slowest rate in 15 months. In addition to declines in consumer spending, households are increasingly taking on debt and drawing down savings to cover purchases. When consumers do make purchases they are increasingly price-conscious, with surveys suggesting households across the income spectrum are limiting purchases of certain high-ticket items and cutting back on travel, furniture and other discretionary spending. When they do spend, they are reducing the quantities purchased, looking for more competitive prices or delaying purchases in general.
Consumers are not the only ones voicing concerns. Comments from various recent corporate earnings calls show how retailers and firms are feeling the effects of the spending pullback. The CEO of Best Buy stated that consumers are increasingly making “tough choices with their budgets.” The CEO of PepsiCo was more blunt, stating that “the lower-income consumer in the US is stretched.”
While consumer spending is waning there is an increase in delinquency rates on credit card and auto debt and the proliferation of ‘buy now pay later.’ Credit card debt delinquency, though still historically low, is now higher than pre-pandemic levels. The rise in “buy now pay later” retail offerings may be exacerbating the consumer debt problem.
While investors and the White House will almost certainly view the jobs report positively, working people are anxious. Close to 80% of households are either somewhat or very concerned about increases in prices over the next six months, while a quarter expect their financial situation to be worse a year from now.
While unemployment is historically low and the waters seem relatively calm, lurking beneath the surface are signs that the economy might be flagging.
Joseph Dean is NCRC’s Racial Economic Junior Research Specialist.
Photo by Joshua Chehov on Unsplash
