U.S. job growth accelerated in May, but a jump in the unemployment rate to a seven-month high of 3.7% suggested that labor market conditions were easing, which could give the Federal Reserve cover to forgo an interest rate hike this month.
The increase in the unemployment rate from a 53-year low of 3.4% in April reported by the Labor Department on Friday was mostly driven by Blacks. It was also partly the result of more people entering the labor force, an increase in supply that is reducing pressure on businesses to raise wages.
Wage growth moderated last month, which should offer some comfort to Fed officials battling to bring inflation back to the U.S. central bank’s 2% target. The closely watched employment report offered more evidence that the economy was far from a dreaded recession, despite weakness in the interest-rate sensitive manufacturing sector and the housing market.
“American businesses are still aggressively hiring, likely to meet resilient consumer demand,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.
“However, the other areas of softness in this report suggests that the labor market is losing steam. There’s likely enough pockets of softness in this report for the Fed to pass on raising rates at the next meeting.”
The survey of establishments showed nonfarm payrolls rose by 339,000 jobs last month. Economists polled by Reuters had forecast payrolls increasing by 190,000. The economy created 93,000 more jobs in March and April than previously estimated.
The economy needs to add 70,000-100,000 jobs per month to keep up with growth in the working-age population.
Despite massive layoffs in the technology sector after companies over-hired during the COVID-19 pandemic and the drag from higher borrowing costs on housing and manufacturing, the services sector, including leisure and hospitality, is still catching up after businesses struggled to find workers over the last two years. Industries like healthcare and education also experienced accelerated retirements.
The backfilling of these retirements and increased demand for services are some of the factors driving job growth. Pent-up demand for workers was underscored by Labor Department data this week showing there were 10.1 million job openings at the end of April, with 1.8 vacancies for every unemployed person.
U.S. stocks opened higher. The dollar was steady against a basket of currencies. U.S. Treasury prices fell.
WAGE INFLATION SLOWING
Last month, professional and business services added 64,000 jobs, with temporary help, seen as a harbinger for future hiring, rebounding. Government employment increased by 56,000, but remains 209,000 jobs below its pre-pandemic level.
The healthcare sector added 52,000 jobs, most of them in ambulatory healthcare services and at hospitals. Leisure and hospitality payrolls increased 48,000, boosted by restaurants and bars. Employment in this industry remains 349,000 below its pre-pandemic level. Construction employment rose 25,000, while transportation and warehousing added 24,000 jobs.
But manufacturing payrolls fell and there were moderate job gains in mining, quarrying, oil and gas extraction as well as wholesale trade, retail trade and financial activities.
Most economists expect overall payrolls growth to continue at least through the end of the year.
Average hourly earnings gained 0.3% after rising 0.4% in April. That lowered the year-on-year increase in wages to 4.3% after advancing 4.4% in April. Annual wage growth averaged about 2.8% prior to the pandemic.
Early on Friday, financial markets saw a more than 70% chance of the Fed keeping its policy rate unchanged at its June 13-14 meeting, according to CME Group’s (NASDAQ:CME) FedWatch Tool. The Fed has raised its benchmark overnight interest rate by 500 basis points since March 202, when it embarked on its fastest monetary policy tightening campaign since the 1980s.
The household survey from which the unemployment rate is calculated showed employment falling 310,000 last month, likely reflecting an on ongoing strike by 11,500 members of the Writers Guild of America. The Labor Department’s Bureau of Labor Statistics, which compiles the employment report, did not record the work stoppage in its May strike report.
The drop in household employment combined with a 130,000 increase in the labor force to boost the unemployment rate. The unemployment rate for blacks jumped to 5.6% from 4.7% in April.
“This might be statistical noise, or it could be a sign of Black workers disproportionately bearing the brunt of a rise in joblessness,” said Nick Bunker, head of economic research at the Indeed Hiring Lab.
The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, was unchanged at 62.6%.
Source: Hellenic Shipping News
