CNN
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US job growth shot much higher than expected in May, jumping to 272,000, while the nation’s jobless rate rose slightly and broke a 27-month streak of below-4% unemployment.
At a time when Americans and the Federal Reserve are clamoring for clear-cut data about the state and trajectory of the economy, Friday’s jobs report was much more opaque than everyone had hoped.
“It’s hard not to like a lot of jobs, and this report was well above what I expected, and I think just about what everyone expected,” Dean Baker, an economist who co-founded the Center for Economic and Policy Research, told CNN. “We’re seeing a lot of job growth, that’s a generally good story.”
He added: “But the Fed’s going ‘Oh, can we cut [interest rates]? Can we cut? Can we cut?’ It’s hard to look at this report and make a good case for cutting, I’ve got to say.”
May’s job gains are considerably higher than the April total, which was revised down to 165,000, according to Bureau of Labor Statistics data released Friday. The May data came in well above expectations for 180,000, according to FactSet consensus estimates.
The unemployment rate rose to 4% from 3.9%. It’s the first time in more than two years that the jobless rate is not below 4%.
Stronger-than-expected wage gains for the month pushed up average hourly earnings to 4.1% over the past year, reversing a monthslong trend of cooling there.
“The Fed doesn’t directly target wages; but where the wages picked up are in the areas where we’ve seen the most inflation,” Diane Swonk, chief economist with KPMG, told CNN.
That’s in the service sector, everything from personal care services, dry cleaning, cleaning and home maintenance and vehicle maintenance, she said.
“And that is something that is hard for the Fed, because in order for some of the increases we’re seeing in the service sector, we need to see offset in goods prices in order to bring inflation down,” she said. “But you need a lot of that consistently to deal with stickier inflation that we’re seeing in the service sector; and, unfortunately, wages matter more in particular areas where inflation has gotten stickiest.”
Critical inflation data is due out Wednesday: The May Consumer Price Index lands the same day the Fed will make its latest policymaking announcement (which is overwhelmingly expected to be that they are keeping rates on hold).
Traders weren’t too giddy about Friday’s employment report, at least when it comes to rate cut prospects. Wall Street’s best bet for the first rate cut is now December, the CME FedWatch Tool shows.
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Friday’s jobs report, at initial glance, appears to be a mixed bag both for Americans and the Fed, which is wanting to see a slowing in demand to help tamp down inflation.
The strong job market has underpinned a robust period of consumer spending that has kept the economy churning — but has not necessarily helped in the inflation fight.
The surge in job gains and the rising unemployment offer a tale of two surveys: The monthly jobs report is composed of two surveys to measure employment levels and activity, one that surveys non-farm businesses about employment, hours and earnings, and the other of households to obtain the labor force status of the population with demographic details.
Employment fell in the household survey, while unemployment increased to just shy of 6.5 million and pushing the unemployment rate to the threshold of 4%. However, the household survey typically is more volatile than the establishment survey that showed payroll gains jumping higher.
“It is literally the height of confusion trying to make sense of one of the most divergent monthly employment reports that we can ever remember,” economist Chris Rupkey, of FwdBonds, wrote in a note issued Friday. “Is it safe out there for consumers and businesses or is the economy on the cusp of a recession?”
CEPR’s Baker said the growing “dissonance” between the household and establishment surveys could be a reflection of the data not fully picking up the post-pandemic surge in immigration that economists say have increased the supply of workers and productivity, allowing for stronger job growth without being inflationary.
“The immigrants are overwhelmingly working when they’re coming here, and we have the data on that,” Baker said. “But my best guess is we’re not picking up the full impact of immigration with the population controls [of the BLS survey].”
Friday’s jobs report may be a mixed bag at a time when the Fed is trying to rein in inflation; but from a historical standpoint, this current jobs market remains one for the record books.
And from a current standpoint, one that’s healthy for Americans who are trying their hardest to keep up with inflation.
“I think it still shows that there’s still plenty of support within the labor market for people who depend on income for spending, which is obviously the vast majority of Americans,” Thomas Simons, senior economist at Jeffries, said in an interview.
Through May, the US economy has added an average of 247,800 jobs per month, which is roughly in line with the strong job growth seen last year. March’s and April’s estimated payroll gains were revised down slightly: March by 5,000 to 310,000; and April by 10,000 to 165,000.
May marks the 41st consecutive month of job gains, extending what is the fifth longest streak on records that go back to 1939, BLS data shows.
Service-providing industries accounted for the bulk of the month’s job gains, with health care and social assistance continuing to lead the way, with 83,500 jobs added. Health care, government and leisure and hospitality accounted for 60% of May’s gains; however, interest rate-sensitive sectors such as construction and manufacturing added jobs as well, Nick Bunker, economic research director for North America for the Indeed Hiring Lab, wrote in a note issued Friday.
“The gains are still broad-based,” he said.
The BLS’ “diffusion index,” which is a measurement of the percentage of industries that are adding or losing jobs, hit 63.4 in May, which is the highest it’s been since January 2023.
The labor market is still showing a lot of strength, Bunker said, noting that the increase in unemployment can be attributed to workers 24 and under, as prime-age employment rose.
In fact, the labor force participation rate for prime working-age women (25-54 years old) set a fresh all-time high of 78.1% in May, BLS data shows.
“Don’t get overly spooked by the rise in the unemployment rate,” Bunker wrote. “The labor market is still gliding toward a soft landing.”