Economy added 272,000 jobs in May, surging past expectations
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Employers added 272,000 jobs in May, shooting past expectations in a sign of a booming labor market that continues to defy economists’ predictions of a slowdown.
However, the unemployment rate ticked up to 4%, ending a historic 27-month streak of unemployment below that benchmark that last happened 50 years ago.
The unemployment rate edged up for Latinos, Asians, teenagers and adult men, and unemployment jumped for African Americans in May, hitting 6.1%, up from 5.6% in April. Economists caution against reading too closely into month-to-month fluctuations in this data.
“The American middle class is seeing their economic standing improved. The strong wages and improving living standards are the main takeaway from this very strong jobs report,” said Joe Brusuelas, chief economist for the accounting firm RSM US. “Unfortunately, it removes any hope of a July rate hike off of the table by the Federal Reserve.”
Job creation accelerated from the previous month and even soared past average monthly growth gains of the year so far, which economists have described as a jobs boom after the labor market cooling that characterized much of 2023. Employers have now added jobs for 41 consecutive months, going back to January 2021.
The hotter-than-expected data complicates the overall picture of the labor market as Federal Reserve policymakers look for signs of a softening economy as an indication that inflation can come down enough to lower high interest rates later in the year. Indeed, financial markets opened lower on the jobs news in trading activity Friday morning, as investors had been hoping for an interest-rate cut in coming months.
Average hourly wage growth accelerated sharply in May to $34.91, which is up 4.1% from the previous year. Still, wages have consistently beaten inflation for nearly a year, in a boost to American workers’ standard of living after years of wages falling behind inflation.
Major job gains continued to be concentrated in a few key service-related sectors, led by health care, government, and leisure and hospitality. Professional, scientific and technical services – composed of white-collar industries – also saw its first major boost in some months.
Despite the strong report, there are other signs of softening in the labor market. Job openings fell to a three-year low in April, according to a separate report from the Labor Department this week. The ratio of job openings to unemployed workers is finally back down to pre-pandemic levels.
Previous elevated levels of job openings had led to high rates of people quitting jobs and worker shortages, giving employees more leverage in the job market during pandemic recovery. However, those labor shortages sparked concern among policymakers at the Federal Reserve hoping to tame surging inflation at the time.
Most signs point to a job market in a healthy spot. Layoffs remain near historic lows as employers are cautious to let people go; workers are staying in place, rather than switching jobs at the elevated rate of the pandemic’s end, when employers had to compete fiercely to keep up with demand.
“You have to zoom out and look at the overall picture,” said Julia Pollak, chief economist at ZipRecruiter. “This is a new normal – a less dynamic and more stay-in-place labor market where companies aren’t firing people quite as much and people aren’t switching jobs quite as much. As a result, companies aren’t having to hire quite as much either.”
Economists say employers facing elevated interest rates that have made borrowing more expensive have been expecting rate cuts later this year, which can spur economic growth. And recent job data gives central bank policymakers some evidence that the economy is approaching a “soft landing,” meaning it is neither running to hot inflation nor veering toward a recession.
One reason that the labor market has grown steadily over the past year, boosting the overall economy as job openings fell, is due to a major pickup in immigration that helped close long-standing labor shortages. More than 3 million immigrants arrived in the United States in 2023, according to data from the Congressional Budget Office.
President Biden’s new plan announced this week to shut off access to the U.S. asylum system when illegal border crossings surpass a daily threshold could change labor market dynamics.
“Immigration has played a very important role in bolstering our economy,” said Brusuelas, chief economist for the accounting firm RSM US. “If we do see a curtailment of immigration, then I would expect that would create a tighter labor market. That would likely send the unemployment rate down and cause wages to rise.”