Moody’s Talks – Inside Economics
Dazed and Confused
Why It Matters
Understanding the nuances behind the payroll numbers is crucial for policymakers, investors, and workers who rely on job growth as a barometer of economic health. The episode highlights how seasonal adjustments and methodological factors can mask underlying trends, offering listeners a more informed perspective on the labor market’s true trajectory.
Key Takeaways
- •May added 172,000 jobs, total three‑month average 188,000
- •Gains driven by healthcare, leisure/hospitality, and local government
- •Birth‑death model added ~96,000 jobs to leisure sector
- •Wage growth slowed to 3.4% YoY, near employment cost index
- •Underlying job growth likely 75‑80k; break‑even around 50k
Pulse Analysis
The latest payroll survey showed a surprising 172,000 jobs added in May, lifting the three‑month average to 188,000. This surge arrived just weeks after the Middle‑East conflict began, prompting analysts to question whether the war or seasonal factors were driving the numbers. During a recent Congressional Budget Office advisory meeting, Mark Zandi highlighted that the 10‑year Treasury yield hovered around 4.6%, reflecting market expectations of tighter monetary policy despite the strong headline. While the unemployment rate held steady at 4.3%, the sharp revision of March and April figures underscored the volatility inherent in monthly employment reporting.
Sector‑level data reveal that healthcare contributed nearly 50,000 jobs, while leisure and hospitality and local government together supplied roughly 120,000. A notable 96,000‑job boost in leisure came from the birth‑death adjustment, which captures employment from newly formed firms—a process amplified by recent business‑formation spikes and, according to some panelists, AI‑driven start‑ups. Finance, by contrast, shed 22,000 positions, reflecting early automation pressures. Wage growth continued its moderation, slipping to a 3.4% year‑over‑year increase, aligning with the latest employment‑cost index. Some participants also linked the temporary lift to recent tax‑cut refunds that buoyed consumer spending in hospitality.
Looking beyond the headline, the panel estimated underlying monthly job creation at 75‑80 k, above the roughly 50 k jobs needed to maintain a stable unemployment rate. If this pace persists, labor‑force participation could rise and the unemployment figure may begin to fall, despite the current survey disconnect where labor‑force growth appears negative. However, analysts caution that the leisure and local‑government spikes are likely seasonal anomalies that could reverse in the fall. Monitoring the birth‑death model, AI adoption trends, and fiscal policy effects will be essential for forecasting the labor market’s trajectory over the next quarter.
Episode Description
Dante joins the Inside Economics crew to dissect the May jobs report, which he describes as shocking. The team discusses whether there is enough evidence to declare that the labor market and underlying job growth have shifted into a higher gear, and debates the growing disconnect between the payroll and household surveys. The stats game delivers some interesting insights about the strength of job growth for women and the impact that remote work has had on young college graduates.
Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s Analytics
Follow Mark Zandi on 'X' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn
Questions or Comments, please email us at InsideEconomics@moodys.com. We would love to hear from you.
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