The U.S. economy recorded another month of solid job growth in May, despite employers struggling with a historically tight labor market and politicians’ efforts to cool demand.
Employers in the world’s largest economy added 390,000 jobs during the month, less than the revised 436,000 jobs created in the previous period, but more than economists had expected.
Unemployment remained at 3.6 percent, just 0.1 percentage points above the level it was at in February 2020, before the coronavirus pandemic spread globally.
According to the Bureau of Labor Statistics, leisure and hospitality were among the sectors that saw “remarkable” gains. More than 80,000 jobs were added in May, and an additional 75,000 jobs in professional and business services were created. Transport and warehousing employment increased by 47,000.
The only sector that experienced losses was retail, where the number of jobs fell by 61,000. Nevertheless, the total employment for this sector is 159,000 above the February 2020 level.
“This was a very good gold cap report, which so far is consistent with a soft landing,” said Ellen Gaske, an economist at PGIM Fixed Income. “These job advancements come along with declining average hourly earnings, so it suggests that economic expansion could potentially prove to be quite robust.”
Despite these gains, the rapid recovery in the US labor market – which has far surpassed the sluggish downturn that characterized the post-global financial crisis period – has been largely overshadowed by the highest inflation in four decades.
With around 1.9 vacancies for every unemployed worker, there is also widespread concern that a prolonged shortage of people willing to join the workforce will keep upward pressure on prices as employers are forced to continue raising wages and improving benefits to attract new employees. and keep those who are already on the payroll.
The data, released by the Bureau of Labor Statistics on Friday, showed that the workforce increased by 330,000, but the proportion of Americans who were either employed or looking for work – also known as the labor force participation rate – had changed slightly. Economists believe, however, that the problems with the labor supply are beginning to ease, which helps to explain the moderate increase in monthly wage growth.
The average hourly wage rose by 0.3 per cent in May. in line with last month’s increase. On an annual basis, this corresponds to 5.2 per cent, slightly slower than the rate of 5.5 per cent recorded in April.
“The slowdown in wage growth is encouraging because it suggests that the broader cyclical price pressures in the economy are close to peaking,” said Michael Pearce, senior U.S. economist at Capital Economics.
President Joe Biden has said tackling high inflation is his administration’s top priority, a message he has been trying to bolster in recent days. Earlier this week, he met with Jay Powell, chairman of the Federal Reserve, and reiterated his support for the US Federal Reserve to do what it takes to curb inflation.
In comments, after the report was released on Friday, Biden proclaimed the historic nature of the job recovery – with 8.7 million. jobs recovered since the beginning of his administration – but recognized the toll imposed by rising prices.
“We have laid an economic foundation that is historically strong, and now we are moving forward to a new moment where we can build on that foundation … so that we can bring inflation down without sacrificing all the historical gains we have achieved, ”he said.
The Fed has already raised interest rates by 0.75 percentage points since March from the near-zero levels that had been in place since the start of the pandemic. It included the first half of the rate hike since May 2000, a tool that top officials have indicated will be used repeatedly in quick succession until there is “clear and convincing” evidence that inflation is declining.
Loretta Mester, president of the Cleveland Fed and voting member of the Federal Open Market Committee’s political vote this year, said Friday that another half-point rate hike may be appropriate in September, following two such adjustments in June and July if inflation does not moderate. sufficient – something Lael Brainard, Vice-President, supported on Thursday.
More generally, Powell and other policy makers have assumed that the Fed will be able to tame price pressure without causing a sharp recession, especially given the strength of the labor market and the high demand for workers.
As the Fed raises borrowing costs by raising interest rates and shrinking the $ 9 billion balance sheet, it is hoped that the number of vacancies will fall instead of direct job losses.
Brian Rose, a senior economist at UBS, said he expects the pace of monthly job growth to slow down soon, perhaps to around 100,000, given the uncertainty of how many more people are left to return to the workforce.
“We can not sustain wage growth at this pace much longer,” he said. “We’re going to run out of people to get back to work after the pandemic.”
Biden acknowledged the same Friday, saying the U.S. economy is unlikely to see “blockbuster” reports month after month. “That’s a good thing,” the president said. “It is a sign of a healthy economy with stable growth, rising wages for working families, daily costs that are declining and reducing the deficit.”
Given the expected trajectory of the labor market, Rose said the Fed is on track to cool the economy down without causing unnecessary pain. However, other economists are less optimistic about the Fed’s ability to make a soft landing.
One complication is the variation in labor market tightness between states and across industries, as a recent analysis by the Financial Times suggests is significant.
U.S. government bonds were sold after the report, in which the leading 10-year note traded 0.06 percentage points higher at 2.97 percent at one point. The two-year government interest rates, which are most sensitive to changes in monetary policy, rose by a smaller amount, up 0.03 percentage points to 2.66 per cent.