US employers added an unexpected barrage of workers in May, reaffirming the vitality of the labor market.
Contrary to expectations of economic slowdown, Employment increased by 339,000 The Labor Department announced Friday that the figures were on a seasonally adjusted basis. The rate of increase was the largest since January and suggests the job market remains hot despite swirling economic headwinds.
But beneath the surface, the report also showed evidence of softening. The unemployment rate, still at a historically low level, rose to 3.7%, the highest since October. Wage growth slowed in a sign that pressure on workers to raise wages is easing.
The cacophony has created a somewhat confusing picture for the Fed, which has been raising rates for more than a year to contain labor market momentum and curb inflation, complicating the math. Fed officials say the jobs report will be a key factor in deciding whether to raise interest rates again.
“The labor market is still slowly cooling,” said Wells Fargo economist Sarah House. “But this is a glacier area.”
President Biden welcomed the report, saying in a statement: “Today is a good day for the American economy and the American worker.” The S&P 500 index rose 1.5% as data showed the economic engine was strong but not overheating.
The report is looming over a congressional-approved debt ceiling deal, but economists largely expect the spending caps and cuts to have a modest impact on the labor market going forward.
Employment figures suggest that employers continue to seek workers despite high interest rates and economic uncertainty. Many businesses still employ workers, especially to meet consumer demand for services. The only major sectors that lost jobs were manufacturing and information.
Job growth was driven by professional and business services such as accounting and bookkeeping, adding 64,000 jobs. As Americans continue to eat out deliciously, the leisure and hospitality industry, supported by restaurants and bars, added 48,000 jobs. Government employment is also still catching up to pre-pandemic levels, but has increased significantly, mainly at the state and local levels.
A surprising 25,000 jobs were added in the construction sector, which is sensitive to rising interest rates.
“There is still a lot of optimism,” said Tom Gimbel, founder and chief executive of LaSalle Networks, a national staffing and recruitment firm. “The small business CEOs I talk to seem to agree that if the Fed slows down now, the economy could stay strong for the next 24 to 30 months.”
Sean Harrell, general manager of Southland, a family restaurant and shopping complex in Moyok, North Carolina, said business was strong as customers flooded Southland stores for ice cream, fudge and fireworks. Told. Far from being dissuaded by price increases in recent months, customers have largely ignored them, Mr. Harrell said.
As a result, companies seem unable to recruit quickly enough. On a recent weekend, Southland was forced to close restaurant dining rooms for dinner and offer take-out orders, he said, because there weren’t enough workers for table service.
“We have to operate with fewer staff than we used to,” he said.
While the labor force participation rate remained relatively flat at 62.6% in May, the labor market participation rate among prime working ages (ages 25 to 54) rose to 83.4%, the highest level since 2007.
The figures in Friday’s report are preliminary and will be revised at least twice. The upward revision to data over the past two months added 93,000 jobs, making the modest job slowdown look even more severe.
At the same time, there is a growing sense of caution in the labor market and across the economy. Wage growth slowed in May, with hourly wages up 0.3% from April and 4.3% from a year earlier.
Hours worked have decreased slightly and are broadly in line with pre-pandemic levels. “If this number goes down for an extended period of time, it could be a sign of a significant cooling in the labor market,” said Nick Bunker, director of North American economic research at job search site Indeed.
While this shows that rate hikes are meeting the Fed’s target, it’s not without pain. Notably, the unemployment rate for black Americans rose from a record low in April to 5.6% in May, up nearly one percentage point.
“The situation is worsening and appears to be hitting the most vulnerable, low-wage minority workers the hardest,” said Julia Pollack, chief economist at ZipRecruiter.
The uneven message contained in Friday’s report is partly because the report consists of two surveys of employers and households. For example, part of the weakness in household surveys is due to the lower ranking of the self-employed, workers not included in the payroll.
Forecasters continue to expect the labor market to weaken in the second half as rate hikes take hold.
Consumer confidence is already declining. Sectors such as banking and manufacturing show clear signs of trouble. A recent regional survey known as the beige bookThe Fed reported that while many firms said they were “fully staffed,” some said they were “struggling with weak actual or future demand, or uncertainty about the economic outlook.” We are suspending hiring or cutting headcount because of the growing number of employees.”
The big question is whether and when a deeper rift will emerge.
One piece of the puzzle is layoffs, and layoffs have remained low outside of some high-profile companies in the tech and media space. On the contrary, many companies are reluctant to let go of their employees and would rather reduce their staffing through layoffs.
That’s how Doug Bassett, president of the Vaughan Bassett Furniture Company in Galax, Virginia, hopes to weather the downturn. Like other manufacturers, Vaughan Bassett saw a surge in domestic wooden furniture sales during the first phase of the pandemic. To accommodate this moment, the company has employed about 75 people, bringing the total to about 575.
But demand has waned as Americans eat out and vacation again, and rising mortgage rates have dampened the housing market. As a result, the number of employees has returned to pre-pandemic levels, Bassett said.
“We hope that by the end of the year performance will recover,” he said. “But we’re not going to change our approach until it shows in numbers.”
Ben Casselman, Joe Rennison and Michael D. Shear Contributed to the report.