Strong Employment Report - jobs, wages, and hours all higher

The economy added 157k (consensus 132k) new jobs in May, while revising the April gain down to 80k from 88k. The unemployment rate held steady at 4.5%, and near the five year low of 4.4%. Average hourly earnings rose +.3% MoM, and increased from +3.7% to +3.8% YoY. In addition, the average work week rose a tenth to 33.9 hours, pushing up average weekly earnings by +.6% MoM and +4.1% YoY. Growth in the three month annualized aggregate hours index rose to +2.3%, the fastest increase in the last six months. Today's report indicates that there is still good demand for labor, but continued softness in the manufacturing sector, where hours declined.

Service industries continue to be the core source of growth in hiring, as +176k new jobs were added in services in May. Education and health added +54k in new jobs, followed by leisure and hospitality at +46k, and business services at +32k. Temporary help and retail both saw declines of less than 10k.

Manufacturing shed -19k jobs for the second month in a row, and also saw workweek and overtime hours each shed a tenth falling to 41 and 4.1 hours. Construction employment was unchanged, in line with the negligible growth in construction spending. Government payrolls expanded by 22k, about the same as the prior month.

The participation rate held constant at 66%, and the average duration of unemployment has fallen back to 16.7 weeks for 17.3 weeks in March.

Note - Recent revisions on labor data for last year have significantly reduced the initially reported labor market gains for the second half of 2006. New data, based on tax information, indicates that job growth in the third quarter of 2006 only increased by 19k, far short of the 498k job gain originally reported based on the monthly payroll survey, which is a much smaller sample. Of course this revision is at odds with the large increase in income taxes paid last year, and leaves many economists confused about which data to be watching on employment and the health of the labor market.