Fri June 9, 2017

The Bureau of Labor Statistics’ employment report for May 2017 showed slower job growth than expected for the nation as a whole. A closer look at the report, however, includes some bright spots, and some key insights and signals for the prospects of the U.S. plastics industry, according to Plastics Industry Association (PLASTICS) Chief Economist Perc Pineda.

A key takeaway from the May employment report is that the U.S. economy continues to add jobs, but at a slower pace. The economy added a total of 138,000 nonfarm jobs in May, and the labor participation rate fell marginally, bringing the unemployment rate down to 4.3 percent, according to the Bureau of Labor Statistics. The last time the unemployment rate was at 4.3 percent was in May 2001.

If we look at a broader measure of unemployment, U-6, which includes total unemployed plus discouraged workers who have given up looking for a job and part-time workers looking for full-time employment, it fell to 8.4 percent in May, from 8.6 percent in April. The last time U-6 was this low was in November 2007, but with the unemployment rate approaching 4.0 percent, expect any subsequent declines to be modest.

While employment in plastics (and rubber products) fell by 3,800­—a 0.14 percent decline from April—there were bright spots in the May jobs report. Most industries that are critical to plastics added jobs in May, indicating that demand for their goods and services is stable, which should benefit plastics moving forward.  Healthcare, residential and non-residential construction, and leisure and hospitality sectors added jobs in May. Manufacturing jobs, however, in motor vehicles and parts and computer and electronics, decreased in May.

Further declines in motor vehicles and parts manufacturing—in line with an industry forecast for lower auto sales in 2017 relative to 2016—would suggest weaker automotive demand that will affect the plastics industry. After a three-month consecutive decline, however, auto and light truck sales rose in April, staying above 16.5 million units. Total motor vehicle assemblies also increased 6.5 percent in April from March. Total auto and light truck sales in 2017 may not be significantly lower than in 2016.

The meager four-cent increase in average hourly earnings in March for all employees on private nonfarm payrolls suggests that despite continued labor market tightening, wage inflation is still lacking to justify aggressive hikes in the Federal Funds interest rate hikes. Increases this year will remain modest until convincing wage-price inflation data surfaces.