Dual Reports Show Weak Labor Market With Low-Paying Jobs Creation Only

Dual reports Wednesday suggest the U.S. labor market is floundering in the second quarter, with job creation missing the mark and gains only in the low-paying service sector.

First, the half-way good news.

Growth in the low-paying services sector increased in May, rising at the fastest pace in nine months and fueled by increases in new orders and business activity.

The Institute for Supply Management said Wednesday its services sector index rose to 56.3 in May, up from 55.2 in April and beating expectations for a read of 55.5.

The report marks the 53rd straight month the index was above 50. Readings above 50 indicate expansion, while below 50 indicates contraction. The May measurement was the highest since August’s report of 57.9, which was a seven-year high.

The gauge of business activity also increased to 62.1, up from 60.9 in April. While it was the highest read for the index since February 2011 and beat economists’ forecast of 60, activity remains slow in higher-paying working class sectors.

The new orders index rose to 60.5, which was the highest level since January 2011, up from 58.2 in April. Meanwhile, the employment index rose to 52.4 from 51.3 in April, but the prices paid index rose to 61.4, its highest since October 2012 and from 60.8.

Now, the bad news.

Private companies hired just 179,000 workers in May, which was the lowest monthly increase since January and missed market expectations. The U.S. economy must add 250,000 monthly to simply keep pace with population increases, a mark consistently missed during the Obama presidency.

A report by the payrolls processor ADP showed on Wednesday that private job gains in April were also revised down to 215,000 from 220,000. Economists surveyed by Reuters had forecast that the ADP National Employment Report would show an increase of 210,000 jobs in the month of May.

The report is jointly developed with Moody’s Analytics.