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Payroll employment increased by 78,000 in May, according to the preliminary report released by the Labor Department on June 3. This gain was smaller than generally expected (the consensus called for 175,000), but the result was not truly alarming. The large April increase (274,000) was left unrevised and the month-to-month pattern has shown a lot of volatility for some time. The average gain was 176,000 for the April-May period, 180,000 on a year-to-date basis and 165,000 over the past 12 months. From this point of view, the trend in payroll job growth looks intact and trend growth in aggregate hours worked is adequate to support our GDP estimate for the second quarter.

The portion of the May employment report that’s based on a survey of households (rather than business establishments) hardly showed weakness in May. Indeed, the gain in household employment was substantial (376,000) and the unemployment rate ticked down to 5.1 percent as the labor force rose by 360,000 and the labor force participation rate edged up for the second month in the row. The return of previously discouraged workers to the labor force is helping to maintain ample slack in the labor market, and we’re counting on this dynamic to support further above-trend growth in economic output.

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