Hiring accelerated in May as employers added a robust 272,000 jobs despite stubborn inflation, high interest rates and intensifying household financial strains
The unemployment rate, which is calculated from a separate survey, rose from 3.9% to 4%, the highest since January 2022, the Labor Department said Friday.
Economists had estimated that 185,000 jobs were added last month, according to a Bloomberg survey.
Has wage growth slowed?
Average hourly pay rose 14 cents to $34.91, pushing up the yearly increase to 4.1%.
Wage growth generally has downshifted as pandemic-related labor shortages have eased, but it’s still above the 3.5% clip that’s consistent with the Federal Reserve’s s 2% inflation goal.
Many Americans, meanwhile, are benefiting because typical pay increases haveoutpaced inflation the past year, giving them more purchasing power.
Is the Fed going to cut interest rates in 2024?
The report will likely not be well received by a Federal Reserve looking for a slowdown in wage growth, which feeds into inflation.
"These data are in no way supportive of an imminent move by the Fed to lower rates," economist Rubeela Farooqi of High Frequency Economics wrote in a note to clients.
In recent weeks, Fed officials have repeatedly said it will take longer than expected to gain confidence that inflation is sustainably approaching their 2% goal, delaying market-friendly interest rate cuts.
After easing significantly last year, inflation stayed high in the first quarter but showed signs of stabilizing in April.
Fed Chair Jerome Powell also has said a notably weakening labor market could prod the Fed to act even if inflation doesn’t slow as rapidly as officials hope. Friday’s strong job gains do little to meet that threshold, though the rising unemployment rate could raise some concerns.
Since March 2022, the Fed has raised its key short-term interest rate from near zero to a 23-year-high of 5.25% to 5.5%, but it has held it steady since last July as inflation has eased. Officials had forecast three rate cuts this year, propelling the stock market to new records. But futures markets are now predicting one or two cuts, with the first coming in September, and some economists think the central bank put could put off rate decreases until next year if inflation stays elevated.
Which industries are hiring the most right now?
Last month, health care and social assistance again led the job gains with 83,000. Leisure and hospitality, which includes restaurants and bars, added 42,000; and professional and business services, 33,000.
The public sector, which accounted for much of the payroll increases in recent months but added just 7,000 positions in April, rebounded with 43,000 gains.
“The sectors that have led over the past year continue to dominate – health care, government, leisure and hospitality," says Jane Oates, senior policy adviser for WorkingNation, a nonprofit that raises awareness about the challenges facing U.S. workers, and former head of the Labor Department’s employment and training division.
What affects job growth?
Several crosscurrents were poised to affect May’s payroll totals. Heavy rains crimped hiring in April and a return to more typical weather patterns last month likely provided a modest boost, says economist Ryan Sweet of Oxford Economics.
Another positive: May had an unusually large number of workdays because of a calendar quirk, lifting employment totals by 50,000 to 80,000, Goldman Sachs wrote in a note to clients.
Yet there were also hurdles. Although May is in the thick of the spring hiring season, many employers are still struggling to find workers post-pandemic, a constraint that may have curtailed job gains after the figures were seasonally adjusted, Goldman says.
Is the labor force increasing?
Immigration, the research firm adds, has significantly expanded the labor pool and should continue to add about 50,000 potential workers a month in 2024 but it has slowed substantially since early this year.
Is 2% inflation realistic?:Should the Fed relax its 2% inflation goal and cut interest rates? Yes, some experts say.
An influx of high school and college students for the summer also should bolster the supply of workers but it’s not clear when that will occur because the timing of the end of the school year varies, Sweet says.
Is the job market good or bad right now?
More broadly, the job market has remained surprisingly resilient despite high inflation and interest rates, but it’s gradually cooling. After adding well over 200,000 jobs a month in the first three months of the year, job gains slowed in April.
A separate Labor Department report this week showed that job openings fell to 8.1 million in April, the lowest tally since early 2021 and well below the record 12 million in early 2022. The number of job vacancies per unemployed worker has slipped to 1.2 from a high of 2 during the Great Resignation, in line with the pre-pandemic level.
And hiring stayed below the pre-pandemic pace. Employment growth has remained strong because businesses have been hesitant to lay off workers following severe pandemic-related labor shortages. But that effect is expected to fade in the second half of the year, with average monthly job gains falling to about 100,000.
