Payrolls increased by 223K in May, and there was a net upward revision of 15K in March and April. The six and 12-month averages remain close to 200K. After declining two-tenths in April, the unemployment rate declined another tenth in May, to 3.8%. The participation rate edged down another tenth but remains in the relatively narrow channel in which it has moved over the past few years. The three-tenths decline in the unemployment rate over the last two months, in combination with a somewhat stronger outlook for GDP, warrants some downward revision in our forecast of the unemployment rate over the remainder of this year. We now anticipate that the unemployment rate will edge a bit below 3½% in 2019. We expect FOMC participants will revise down their projected paths of the unemployment rate as well.
Wage growth also showed some improvement with a three-tenths increase in average hourly earnings in May. That brought the 12-month rate back up to 2.7%, from 2.6%. That will be welcomed by FOMC participants, many of whom have pointed to moderate wage growth as evidence that the labor market is not overheating. The FOMC’s preferred measure of wage growth is the Employment Cost Index (ECI) for private industry workers, which posted a solid gain in the first quarter. That brought the year-over-year rate to 2.8%—the fastest pace of the expansion but modest by historical standards. The average hourly earnings measure is now in the same ballpark. The FOMC won’t receive another update of these data until late July though.