The U.S. Bureau of Labor Statistics released May employment data on Friday, and the report was strong.
May saw 280,000 jobs added compared to expectations of 226,000, a sizable improvement from prior months. Unemployment ticked up 10 basis points to 5.5%, though the labor force participation rate also rose modestly to 62.9% after years of decline.
Wage growth showed mild improvement in the May release, rising 2.3% from a year ago compared to expectations of 2.2%. Among the major employment sectors, energy extraction and support activities continues to struggle, but the auto industry, residential construction sector and healthcare sector all showed well.
May Job Growth Is the Strongest of 2015
The U.S. economy added 280,000 jobs in May, handily beating expectations of 226,000. This was a massive improvement from the prior few months, which saw weak growth revised downward even further.
May also marked the strongest single month of job growth since December of last year, a sign the economy is resuming its previously strong pace of growth after wavering in the early part of 2015. These gains are representative of a host employment sectors that are experiencing solid growth such as residential construction, healthcare, the auto industry and professional/business services.
Unemployment Treading Water as Labor Force Participation Stabilizes
The unemployment rate ticked up 10 basis points to 5.5% in May, just a month after declining 10 basis points to 5.4%. However, the news is not necessarily bad, since the labor force participation rate also ticked up slightly to 62.9%. This is the second straight month the participation rate has ticked higher, a signal that the rate is stabilizing after years of persistent decline.
If the labor force participation rate begins to pick up steam and grow appreciably, it would likely mean a slowdown in the pace of the unemployment rate’s decline but would still paint a positive economic picture.
Wage Growth Barely Beat Expectations in May
Wage growth showed mild improvement in the May release, rising 2.3% from a year ago compared to expectations of 2.2%. Much like labor force participation, wage growth has certainly stabilized but is yet to show any marked improvement in this data set.
The Employment Cost Index, a different wage data series, is showing more noticeable gains. Wage growth is needed to further fuel the consumer and housing market as we have mentioned numerous times. We maintain that the continued tightening of the labor market will lead to stronger wage growth in the second half of this year.
The Energy Sector Still Suffering a Contraction
The energy sector continues to get drilled (sorry!) as oil and gas extraction, support activities for mining and mining ex oil and gas were among the worst performing sectors. Surprisingly pipeline transportation and coal products manufacturing saw gains over the past three months, but these are much smaller compared to the extraction sectors.
The price of oil has not recovered significantly, meaning pressure should remain on this sector. The Texas metro areas, in particular Houston, are beginning to show signs of the leak, but the worst is yet to come. Office and industrial absorption and rents will be the most directly effected as the sector consolidates and recalibrates to this new price reality. Home price appreciation will likely cool as well as royalty incomes slow.
A Strong Auto Sector Could Help Lift Select Regions With Auto Manufacturing Exposure
After strong motor vehicle sales reports earlier in the week, the auto industry showed well in the employment report. Motor vehicles and parts, automobile dealers and parts dealers have all seen employment rise over 4% from a year ago and displayed solid momentum over the past three months.
This could benefit Detroit and other areas with auto manufacturing exposure, such as South Carolina’s local economies.
This post originally appeared on Auction.com.