What jobs figures say about the US economy
May numbers contain some mixed messages
WASHINGTON – The nation’s employers stepped up their hiring in May, adding a robust 339,000 jobs, well above expectations and evidence of enduring strength in an economy that the Federal Reserve is desperately trying to cool.
Friday’s report from the government reflected the job market’s resilience after more than a year of aggressive interest rate increases by the Fed. Many industries, from construction to restaurants to health care, are still adding jobs to keep up with consumer demand and restore their workforces to pre-pandemic levels.
Overall, the report painted a mostly encouraging picture of the job market. Yet there were some mixed messages in the May figures. Notably, the unemployment rate rose to 3.7%, from a fivedecade low of 3.4% in April. It’s the highest unemployment rate since October. (The government compiles the unemployment data using a different survey than the one used to calculate job gains, and the two surveys sometimes conflict.)
Is the labor market as strong as the jobs gain suggests?
Probably not. In May, employers added the most jobs since January. So the overall picture is an encouraging one. Yet there are signs that hiring is cooling from the super-heated levels of the past two years.
For one thing, the length of the average workweek declined, to 34.3 hours from 34.4 in April. That is a seemingly small drop, but economists said it’s equivalent to cutting several hundred thousand jobs. It means that, on average, weekly paychecks will be slightly smaller. The average workweek is down from 34.6 hours a year ago.
Hourly wage growth also dipped in May, evidence that many businesses feel less pressure to dangle higher pay to find and keep workers. Average hourly pay increased 4.3% from a year earlier. That’s down from gangbusters gains of nearly 6% a year ago.
And the rise in the unemployment rate partly reflected higher layoffs. This suggested that not everyone who lost jobs in recent high-profile layoffs by banks, tech firms and media companies has found new work.
Is the economy headed for a recession?
Not likely anytime soon. The strong, steady job growth of the past several months shows that the economy remains in solid shape despite the Fed’s interest rate hikes, which have made borrowing much costlier for businesses and consumers. A recession, if one occurs, is likely further away than many economists had previously thought.
“As long as the economy continues to produce above 200,000 jobs per month, this economy simply is not going to slip into recession,” said Joe Brusuelas, chief economist at consulting firm RSM.
More hiring translates into more Americans earning paychecks, a trend that suggests that consumer spending – the principal driver of U.S. economic growth – will keep growing.
Does that mean the economy is in the clear?
Not necessarily. Some cracks in the economy’s foundations have emerged. Home sales have tumbled. A measure of factory activity showed that manufacturing has contracted for seven straight months.
And consumers are showing signs of straining to keep up with higher prices.
The proportion of Americans who are struggling to stay current on their credit card and auto loan debt rose in the first three months of this year, according to the Federal Reserve Bank of New York.
Sales at several retail companies, including discount chain Dollar General and department store Macy’s, have weakened. That indicates that lowerincome consumers, in particular, are feeling squeezed by high inflation.
And the threat of further interest rate hikes by the Fed, in its continuing drive to fight inflation, always looms. The Fed’s rate increases have elevated the costs of mortgages, auto loans, credit card use and business borrowing.
The Fed has projected that its rate hikes will weaken the economy and raise unemployment, as well as lower inflation. Still, Chair Jerome Powell has held out hope that the central bank can significantly slow price growth without causing a deep recession.
“The continued strength in employment pushes back the start of a prospective recession but does not eliminate that likelihood,” said Kathy Bostjancic, chief economist at Nationwide. “If the economy remains too hot to meaningfully slow inflation, the Fed will simply raise rates higher, still a path toward a downturn.”
What does all this mean for the Fed’s approach to interest rates?
Top Fed officials signaled last week that they plan to forgo a rate increase at their June 13-14 meeting.
This would allow them time to assess how their previous rate hikes have affected the inflation pressures underlying the economy.
The Fed has increased its key rate by a substantial 5 percentage points since March 2022, to about 5.1%, the highest level in 16 years. Higher rates typically take time to affect job growth and inflation.