The US labor market continued to defy expectations in May, adding 339,000 new jobs. The figure was well above what economists had expected and signals that ongoing efforts to cool the economy and reduce inflation are having, at best, only mixed success.
The increase in jobs has been accompanied by a steady increase in wages. Figures released on Friday show a 4.3% year-on-year increase in workers’ wages. The new jobs were also spread across various sectors of the economy, with professional services, government, healthcare, construction and transportation all posting significant increases.
The data also showed an upward revision to previous job growth estimates for March and April, indicating that an additional 93,000 jobs were added in those months.
“For all the talk of the recession to come, you would never know by looking at the labor market,” Greg McBride, senior vice president and chief financial analyst at Bankrate.com told VOA. “Another month of strong payroll growth, upward revisions from March and April, and payroll growth that tended to be concentrated in higher paying jobs. You don’t see this very often …and this speaks to the robustness of the labor market.
Unexpectedly, the Labor Department also reported a slight increase in the unemployment rate from 3.4% to 3.7%. The number remains near historic lows and it is not uncommon for the unemployment rate to rise even as the number of jobs increases. Indeed, the “establishment” survey, which the government uses to count jobs, and the “household” survey, which it uses to measure unemployment, are different.
The disparity is largely explained by the fact that many people previously listed as self-employed are now seeking employment in the regular workforce, which temporarily skews the unemployment figures.
The numbers point to a US economy that has remained resilient during a period of sharp interest rate hikes by the Federal Reserve, which has raised rates from near zero to between 5% and 5.25% in the 14 months since March 2022.
The goal of the Fed’s rate hikes has been to reduce inflation, which soared in 2022, hitting an annual rate of 9.1% in June last year.
The inflation rate has slowed markedly since then, to 4.9% in May, according to the latest available data. This figure still outstrips wage growth, leaving many workers feeling like they are losing ground even with higher take-home pay.
Good news without mixture
Joseph E. Gagnon, senior fellow at the Peterson Institute for International Economics, told VOA that while there are many nuances to the report, part of what he called “undiluted good news” is that the American workforce continues to grow.
Friday’s data showed a seasonally adjusted U.S. workforce of 168.8 million, well above pre-pandemic levels, which Gagnon said is good for the economy as a whole and for those who worry about inflation.
“That means people get more income and more job opportunities,” Gagnon said. “But it also means there’s less inflationary pressure, because if there are more workers, they can produce more, and that can actually keep prices down.”
In Washington, Democrats and Republicans have chosen to view the jobs report through their preferred lenses.
In a statement released after the report, President Joe Biden celebrated the news, while noting that he had recently brokered a deal with Republicans in the House of Representatives to raise the country’s debt ceiling and avoid the risk of a a catastrophic default on the country’s debts.
“We have now created over 13 million jobs since I took office,” he said. “That’s more jobs in 28 months than any president has created in 4 years.”
He added, “In short, Biden’s economic plan is working. And thanks to the historic action taken by Congress this week, my economic plan will continue to provide good jobs for the American people in communities across the country.
Republicans were quick to point out that the rosy jobs report belies the fact that many Americans continue to feel economically struggling.
“Real wages are down as 60% of workers say they are living paycheck to paycheck and 83% say the nation’s economic situation is negative,” the Republican National Committee tweeted. “Biden inflation is killing the financial well-being of American families.”
Republicans’ assertion that the strong economy is not benefiting all Americans seems to have some resonance with the public. On Tuesday, the Conference Board, which tracks consumer sentiment, reported that its consumer confidence index fell from 103.7 to 102.3 in May. (The Conference Board uses a scale that sets consumer confidence measured in 1985 at 100.)
“Consumer confidence declined in May as consumers’ outlook on current conditions turned a little less optimistic while their expectations remained gloomy,” said Ataman Ozyildirim, senior director of economics at The Conference Board, in a statement.
Ozyildirim reported that consumers’ experience of the economy appears to be at odds with official figures. Survey respondents felt job availability was lower than the government reports and said they expect higher inflation over the next six months, even if the official rate falls.
Impact on the Fed
It’s unclear, at this point, how the higher-than-expected job numbers for the past month will affect the thinking of Federal Reserve policymakers, who had signaled they may be ready to put interest rate hikes on hold. interest as they assess the impact current rates have on inflation.
The Fed tried to put in place what economists call a “soft landing”. In other words, policymakers are trying to slow the economy enough to bring inflation down to a more manageable level, but not so much as to tip the country into a recession. One of the expected effects of a slowing economy was supposed to have been slower or even negative job growth.
Gagnon said it’s possible the central bank could consider another small rate hike this month, but said much of the urgency that marked big rate increases a year ago isn’t no longer applies.
“I think the Fed is not in an ideal situation, but it’s not horrible,” he said. “It can be patient or slow. It’s unclear if they might want to raise rates a bit more, but I don’t see the urgent need we had a year ago to raise 75 basis points at every meeting. We are not there now.