The unemployment rate fell in May’s Employment Situation Report. On a seasonally adjusted basis, 431,000 jobs were added. On an unadjusted basis, 1.09 million jobs were added. The Bloomberg consensus for the adjusted number was 540,000 (consensus range was 225,000 to 635,000). From the report:

Total nonfarm payroll employment grew by 431,000 in May, reflecting the hiring of 411,000 temporary employees to work on Census 2010, the U.S. Bureau of Labor Statistics reported today. Private-sector employment changed little (+41,000). Manufacturing, temporary help services, and mining added jobs, while construction employment declined. The unemployment rate edged down to 9.7 percent.

The number of unemployed persons was 15.0 million in May. The unemployment rate edged down to 9.7 percent, the same rate as in the first 3 months of 2010.

…

The number of persons employed part time for economic reasons (some- times referred to as involuntary part-time workers) declined by 343,000 in May to 8.8 million. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

…

Manufacturing employment increased by 29,000 over the month. Factory employment has risen by 126,000 over the past 5 months. Within manufacturing, both fabricated metals and machinery added jobs in May.

Temporary help services added 31,000 jobs over the month; employment in the industry has risen by 362,000 since September 2009.

Employment in mining continued to increase in May, with a gain of 10,000. Support activities for mining accounted for 8,000 of the over-the-month increase. Since October 2009, mining employment has expanded by 50,000.

Health care employment was little changed in May (+8,000). Over the prior 12 months, health care employment had increased by an average of 20,000 per month.

In May, employment in construction declined by 35,000, largely off- setting gains in the industry in the prior 2 months. May’s job loss was spread throughout the sector.

Government employment rose by 390,000 in May. The Federal government hired 411,000 temporary workers for Census 2010, bringing total temporary census staffing during the payroll survey reference period to 564,000. Employment in state government excluding education decreased by 13,000.

As always, these numbers are seasonally adjusted, so they are more useful for spotting trends than for actually determining where hiring has taken place. In general, hiring of actual people was significantly better than the seasonally adjusted numbers because May is a negative adjustment month. 1.09 million more actual human beings were working at the end of May compared to April.

Other statistics were a mixed bag. The average workweek increased to 34.2 hours (+0.1 hour). Average hourly earnings increased to $22.57 (+$0.07). March data received a -22k revision (still positive, though). The civilian labor force participation rate fell 0.2 percentage points and reentrants to the labor force fell by 286,000.

Hiring for the census (pdf) traditionally peaks in May. Since that was the driver for jobs in May, that should be reason for concern. Historically, a significant number of those jobs are lost in June.

The alternative measures of labor underutilization can be found in table A-15. U-6, the broadest measure of unemployment, dropped from 17.1% to 16.6% (unadjusted, it decreased from 16.6% to 16.1%). This is often cited as the “real” unemployment rate.

If you are interested in the unadjusted data, here are the job gains/losses by industry:

1. Mining and logging: +19k
2. Construction: +151k
3. Manufacturing: +69k
4. Trade, transportation, and utilities: +181k
5. Information: +6k
6. Financial activities: +6k
7. Professional and business services: -8k
8. Education and health services: -82k
9. Leisure and hospitality: +338k
10. Other services: +31k
11. Government: +379k (federal and local up, state down)

I think the case can be made that this report is much stronger than the headline number reveals. Some people like to point out that the Birth/Death models are complete garbage (especially if the weekly new claims number is still coming in above 400k), but that only added 215k to the unadjusted numbers. Remember, they do not get added to the seasonally adjusted numbers. It’s an important thing to consider, as they are the difference between arguing that 20% of the jobs stats are spreadsheet artifacts and (incorrectly) arguing that 50% of the jobs stats are bogus.

As I mentioned last month, we are very likely nearing a peak in good news, largely due to external events. Domestic events might also be conspiring to make May the peak (I’m still hoping for June). As we get through the summer, we’ll have to deal with the end of the census and the implosion of state and local government budgets. New York and Illinois alone already have overdue bills adding up to billions of dollars, so this isn’t mere speculation about the next shoe to drop. Without tier V benefits for the unemployed, hundreds of thousands of unemployed will make the abrupt transition from mediocre incomes to no incomes. That’s a pretty big shock from the inside. The impacts on fishing and tourism from the oil volcano will get worse and linger forever. From the outside, we still have multiple European concerns (non-eurozone members are getting attention again). Tensions are rising in the middle east and the Korean peninsula. As a result, the conclusion is the same as last month: this report is quite strong, but we needed something spectacular.