Job gains lead to a solid economy and Fed rate hikes
U.S. employers added 390,000 jobs in May, extending a streak of solid hiring that has bolstered an economy under pressure from high inflation and rising interest rates.
Last month’s gain reflects a resilient job market that has so far shrugged off concerns that the economy will weaken in the coming months as the Federal Reserve steadily raises interest rates to fight inflation. The unemployment rate remained 3.6%, just above a half-century low, the Labor Department said Friday.
The job growth in May, though healthy, was the lowest monthly gain in a year. But it was high enough to keep the Fed on track to pursue what’s likely to be the fastest series of rate hikes in more than 30 years. Stock market indexes fell Friday after the government released the jobs report, reflecting that concern.
Businesses in many industries remain desperate to hire because their customers have kept spending freely despite intensifying concerns about high inflation. Americans’ finances have been buoyed by rising pay and an unusually large pile of savings that were accumulated during the pandemic, particularly by higher-income households.
“Given all the talk we’ve heard about recession and economic headwinds, it was very reassuring to see a solid jobs number,” said Mark Vitner, senior economist at Wells Fargo.
One encouraging sign, Vitner said, was that hiring was broad-based across most of the economy.
“When the economy loses momentum,” he said, hiring tends to occur in
just a few sectors, “and that’s not what we’re seeing today.”
Nearly every large industry added workers in May. One major exception was retail, which shed nearly 61,000 positions. Some large retailers, including Walmart and Target, have reported disappointing sales and earnings. Last month, Walmart said it had over-hired and then reduced its head count through attrition.
Construction companies added 36,000 jobs, a hopeful sign for Americans who have bought new homes that aren’t yet built because of labor and parts shortages. Shipping and warehousing companies, still struggling to keep up with growing online commerce, added 47,000 jobs. Restaurants, hotels and entertainment venues hired 84,000.
Last month, Friday’s report showed, more Americans came off the sidelines of the workforce and found jobs, a sign that rising wages and plentiful opportunities are encouraging people to look for work. Still, the proportion of people who either have a job or are looking for one remains below pre-pandemic levels.
Rising prices might also have led some to take jobs: The number of people ages 55 or over who are working rose last month, suggesting that some older Americans are “unretiring” after leaving their jobs — or being laid off — during the pandemic and its aftermath.
Average hourly wages rose 10 cents in May to $31.95, the government said, a solid gain but not enough to keep up with inflation. Compared with 12 months earlier, hourly pay climbed 5.2%, down from a 5.5% year-over-year gain in April and the second straight drop.
Still, more moderate pay raises could ease inflationary pressures in the economy and help sustain growth.
Workers, in general, are enjoying nearly unprecedented bargaining power. The number of people who are quitting jobs, typically for better positions at higher pay, has been at or near a record high for six months. Layoffs are at their lowest level on records dating back 20 years.
Yet there are signs that some companies, facing rising costs for parts and labor, are starting to think twice about demands for higher pay.
One such executive is Jackie Bondanza, CEO of Hounds Town, a chain of doggie daycares with 30 locations in 14 states. Bondanza said people are applying for jobs at the company’s headquarters in Ronkonkoma, New York, who don’t necessarily have relevant experience yet are demanding high salaries.
“People are coming in demanding 30% more,” she said. “We can’t afford to overpay for somebody.”
Even so, Bondanza plans to keep hiring to support the company’s expansion. Hounds Town, which expects to open 50 new franchised outlets in the next 18 months, is seeking to fill three jobs, including a training director and a marketing director. The company now has 17 employees at its corporate office, up from five a year ago.
Inflation, she said, has yet to discourage most customers from seeking the company’s services, which include daily care for dogs and boarding.