Is there a labor shortage? What the May jobs report tells us

The weaker-than-expected April jobs report fueled speculation of U.S. labor shortages and led some state officials to declare an early end to enhanced unemployment benefits.  

Yet forecasters hoping for clarity from the May tally may be left scratching their heads.

It’s hard to draw conclusions about sustained weakness or labor-supply issues from the data published Friday, according to economists. The May report offers something of a mixed bag and somewhat contradictory data points, they said.

“It’s a Rorschach test,” according to Nick Bunker, an economist at job site Indeed. “It’s a bunch of ink on a piece of paper, and everyone is seeing different images.”

May jobs report

For example, there’s the headline number: The U.S. economy added 559,000 people to payrolls in May.

On one hand, some observers may use the data point to suggest workers aren’t rejoining the labor force as quickly as one might expect.

The jobs figure was below economists’ estimate of 671,000. At that pace, it would take more than a year to regain all the jobs lost since February, 2020.

On the other hand, job growth accelerated in May — new payrolls doubled from April. And the last few recessions were characterized by long job recoveries, economists said.

May’s job gains are also roughly equivalent to the average over the past three months — suggesting they were in line with what expectations should perhaps have been, Bunker said.

“I think it’s a story of expectation versus reality,” he said. “What’s a good pace of growth is sort of in the eye of the beholder.”

Labor force participation

The labor force shrank slightly — by 53,000 workers — in May, to around 160.9 million.

That gives ammunition to observers who believe there’s a labor shortage. There are about 3.5 million fewer people in the workforce relative to February, 2020.

“The rate at which adults are participating in the workforce has been flat since last summer,” Michel Strain, director of economic policy studies at the American Enterprise Institute, a right-leaning think tank, said in a tweet Friday. “This is a significant issue. Workers are not coming back.”