Monthly Job Creation data
Source: U.S. Bureau of Labor Statistics
The new jobs report shows that 339,000 jobs were added to the U.S. economy. This is good news for the U.S. consumer but a mitigated one for the Federal Reserve. The May jobs report released Friday showed the US economy remains strong with more than 300,000 jobs created last month, while the unemployment rate rose to 3.7% against the estimate for 3.5%, even though the labor participation rate was unchanged, according to the U.S. Bureau of Labor Statistics. The US economy added 339,000 nonfarm payroll jobs last month. This marks the 14th-straight month that job creation came in above what Wall Street economists had expected.
Average hourly earnings, a key inflation indicator, rose 0.3% for the month, which was in line with expectations. On an annual basis, wages increased 4.3%, which was 0.1 percentage point below the estimate. The average workweek fell by 0.1 hour to 34.3 hours. Markets reacted positively to the report, with futures tied to the Dow Jones Industrial Average up about 200 points. Treasury yields rose as well.
May’s hiring jump was almost exactly in line with the 12-month average of 341,000 in a job market that has held up remarkably well in an economy that has been slowing. Professional and business services led job creation for the month with a net 64,000 new hires. Government helped boosts the numbers with an addition of 56,000 jobs, while health care contributed 52,000. Other notable gainers included leisure and hospitality (48,000), construction (25,000) transportation, and warehousing (24,000).
Despite the big jobs gain, the unemployment rate increased due in large part to a sharp decline of 369,000 in self-employment. That was part of an overall drop of 310,000 counted as employed in the household survey, which is used to calculate the unemployment rate. An alternative measure of unemployment that encompasses discouraged workers and those holding part-time jobs for economic reasons edged higher to 6.7%. May’s jobs numbers come amid a challenging time for the economy, with many experts still expecting a recession later this year or early in 2024.
The recent data had shown that consumers continue to spend, though they are dipping into savings and increasingly using credit cards to pay for their purchases. A resilient labor market also has helped underpin spending, with job openings risking back above 10 million in April as employers still find it difficult to fill open positions.
The Federal Reserve has raised benchmark interest rates ten times since March 20233 in an effort to fight inflation that hasn’t gone away. In recent days, some policymakers have indicated a willingness to take a break in June from the succession of hikes as they look to see what impact the policy tightening is having on the economy. However, the odds for a June rate hike rose after the jobs report. Traders were pricing in about a 38% chance of another quarter-point increase, according to CME Group data.
The strong payroll growth might well convince the Federal Reserve to keep raising interest rates until they see clearer signs of job and wage growth slowing. But the household data suggest some slowing has been occurring, and we should carefully watch for more in the coming months.