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US economy created an impressive 272 thousand jobs in May
CNN –
US job growth soared much better than expected in May, jumping to 272,000, while the country’s unemployment rate increased slightly and broke a 27-month streak of unemployment below 4%.
At a time when Americans and the Federal Reserve are clamoring for clear data on the state and trajectory of the economy, Friday’s jobs report was much more opaque than anyone expected.
“It’s hard not to like a lot of jobs, and this report came in well above what I expected, and I think pretty much what everyone expected,” Dean Baker, an economist who co-founded the Center for Economic and Policy Research, told CNN. . “We’re seeing a lot of job growth, that’s a generally good story.”
He added: “But the Fed will say ‘Oh, we can cut [interest rates]? Can we cut? Can we cut? It’s hard to look at this report and defend the cut, I must say.”
May’s job gains are considerably higher than the April total, which was revised down to 165,000, according to Bureau of Labor Statistics data released Friday. May data arrived well above expectations for 180,000according to FactSet consensus estimates.
The unemployment rate rose from 3.9% to 4%. It is the first time in more than two years that the unemployment rate has not fallen below 4%.
Stronger-than-expected wage gains this month increased average hourly earnings to 4.1% last year, reversing a cooling trend that had been ongoing for months.
“The Fed does not directly target wages; but where wages have increased are in the areas where we have seen the highest inflation,” Diane Swonk, chief economist at KPMG, told CNN.
This is in the service sector, from personal care services, dry cleaning, home cleaning and maintenance, and vehicle maintenance, she said.
“And that’s a difficult thing for the Fed to do, because for some of the increases that we’re seeing in the services sector, we need to see offsets in the prices of goods in order to reduce inflation,” she said. “But it takes a lot of this on a consistent basis to deal with the stickier inflation we are seeing in the services sector; and, unfortunately, wages matter more in specific areas where inflation has become stickier.”
Critical inflation data will be released on Wednesday: The May Consumer Price Index arrives on the same day that the Fed will make its latest policy announcement (which is overwhelmingly expected to be keeping rates unchanged).
Traders weren’t too excited about Friday’s jobs report, at least as far as the prospects for rate cuts are concerned. Wall Street’s best bet for first rate cut is now December, says CME The FedWatch tool shows.
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Friday’s jobs report, at first glance, appears to be a mixed bag for both Americans and the Fed, which wants to see a slowdown in demand to help curb inflation.
The strong job market supported a robust period of consumer spending that kept the economy moving – but didn’t necessarily help in the fight against inflation.
Rising job gains and rising unemployment offer a tale of two surveys: the monthly employment report is comprised of two surveys to measure employment levels and activity, one that asks nonfarm businesses about employment, hours of work and income, and the other on families to obtain the population status in the labor force with demographic details.
Employment fell in the household survey, while unemployment rose to just under 6.5 million, pushing the unemployment rate to the 4% threshold. However, the household survey is typically more volatile than the establishment survey, which showed that wage gains increased further.
“It is literally the height of confusion trying to make sense of one of the most divergent monthly employment reports we can remember,” FwdBonds economist Chris Rupkey wrote in a note released Friday. “Is it safe for consumers and businesses or is the economy on the brink of a recession?”
CEPR’s Baker said the growing “dissonance” between household and establishment surveys could be a reflection of the data not fully capturing the post-pandemic surge in immigration that economists say has increased the supply of workers and productivity, allowing for stronger employment growth without being inflationary.
“The overwhelming majority of immigrants work when they come here and we have data on that,” Baker said. “But my best guess is that we are not capturing the full impact of immigration with population controls [of the BLS survey].”
Friday’s jobs report could be confusing at a time when the Fed is trying to tamp down inflation; but from a historical point of view, this current job market continues to be one for the record books.
And from today’s perspective, it’s healthy for Americans who are trying their best to keep up with inflation.
“I think it still shows that there is still a lot of support in the job market for people who rely on income to spend, which is obviously the vast majority of Americans,” Thomas Simons, senior economist at Jeffries, said in an interview.
Through May, the U.S. economy added an average of 247,800 jobs per month, which is roughly in line with the strong job growth seen last year. Estimated payroll gains for March and April were revised down slightly: March by 5,000 to 310,000; and April by 10,000 to 165,000.
May marks the 41st consecutive month of job gains, extending what is the fifth-longest streak dating back to 1939, BLS data shows.
Service industries accounted for most of the month’s job gains, with health care and social assistance continuing to lead with 83,500 jobs created. Healthcare, government, and leisure and hospitality accounted for 60% of May’s gains; However, interest rate-sensitive sectors such as construction and manufacturing also added jobs, wrote Nick Bunker, director of economic research for North America at Even Hiring Lab, in a note released Friday.
“The gains are still across the board,” he said.
The BLS “diffusion index,” which measures the percentage of industries that are adding or losing jobs, reached 63.4 in May, the highest value since January 2023.
The job market still shows a lot of strength, Bunker said, noting that the rise in unemployment can be attributed to workers 24 and younger as working-age employment has increased.
In fact, the labor force participation rate of working-age women (25-54 years old) reached a new all-time high of 78.1% in May, BLS data shows.
“Don’t get too scared about the rising unemployment rate,” Bunker wrote. “The job market is still heading for a soft landing.”