Job Market Maintains Momentum Despite Headwinds

390,000 jobs were added in May, largely keeping pace with recent growth

Service Engineer explaining to Businessman about the HVAC system ( Heating, Ventilation and Air Conditioning ) in control room shopfloor of factory.

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In an economy wracked by soaring gas prices, surging borrowing costs, and consumer malaise, the job market remains a bright spot.

Key Takeaways

  • The U.S. economy added 390,000 jobs in May, continuing to make progress toward a full recovery from pandemic losses.
  • The unemployment rate stayed at 3.6%, just shy of the 3.5% we saw just before the pandemic.
  • Wages continued to rise, though the pace of growth is slowing slightly. That’s actually a good sign for controlling rampant inflation, economists said. 
  • Good hiring conditions are a bright spot for consumers grappling with soaring gas prices, bigger grocery bills, and surging mortgage rates.

The U.S. added 390,000 jobs in May, roughly keeping pace with the previous couple of months, and exceeding the 328,000 that economists had forecast, the Bureau of Labor Statistics reported Friday. The unemployment rate remained at 3.6% for the third month in a row, just a tad above its pre-pandemic level of 3.5%.

Additions every month for almost a year and a half now means the country is less than 1 million jobs short of recovering all 22 million jobs lost during the initial crush of pandemic lockdowns. Average wages continue to rise, layoffs are at a record low, and those looking for work still have plenty of options. Meanwhile, inflation is still near 40-year highs, the ultra-low mortgage rates of the pandemic era are long gone now that the Fed has been raising its benchmark interest rate, and recession fears have spooked the stock market.

“More improvement in the job market and no recession in sight, at least not yet,” economists at First Trust Advisors wrote in a commentary. 

The labor market seems to have “shrugged off” the headwinds of higher inflation and interest rates, wrote Sophia Koropeckyj, a managing director for Moody's Analytics.

Double-Edged Sword

While it’s encouraging employers are still adding to their payrolls at this pace, such robust hiring conditions can be a double-edged sword. The demand for workers has pushed average wages up far more rapidly over the past year than before the pandemic, but the extra money in the economy is also contributing to today’s rampant inflation, according to some economists.

Fortunately, they said, there are signs the pace of wage growth is starting to slow. And the fact that the 390,000 jobs added in May was a slight decline from the progress in March and April might even signal employers aren’t quite as desperate anymore. 

“It seems like this could be the beginning of a soft landing,” said Nick Bunker, economic research director for North America at Indeed Hiring Lab, referring to how Federal Reserve officials hope higher borrowing costs will slow the economy just enough to get inflation under control, but not too much.

Pay Hikes Moderate

The average hourly wage rose to $31.95 in May—10 cents or 0.3% higher than April and 5.2% higher than in May of last year. That’s a slightly slower annual pace than the 5.5%-5.6% seen over the previous two months. (Though still not enough to make up for inflation running at over 8%.) And some businesses are starting to report the pace of pay hikes flattening out or declining, the Fed said this week in its May report on economic conditions around different parts of the country.

Employers in many sectors added jobs in May, including restaurants and bars, hotels, trucking companies, warehouses, hospitals, and manufacturers. Retailers, however, lost 60,700 jobs, suggesting that people are shifting their money more toward activities and services rather than things, and that big box retailers may be struggling to cope with inflation, economists said.

Indeed, corporate America is starting to send mixed signals about its appetite to hire. Elon Musk, the world’s richest man and CEO of electric carmaker Tesla and spaceflight company SpaceX, called for a 10% reduction in Tesla’s roughly 100,000-person workforce, citing a “super bad feeling” about the direction of the economy, Reuters reported Friday, citing internal emails.  

On the other hand, this week Ford said it was hiring 6,200 workers to build electric vehicles, among other things. (When asked about Musk’s comments at a press conference Friday, President Joe Biden said, “Lots of luck on his trip to the moon,” after mentioning Ford and other employers hiring.) 

In another positive sign, the labor force participation rate (a measure of anyone with a job or actively looking) headed back in the right direction in May after declining for the first time in almost a year in April. It has yet to reach its pre-pandemic level of 63.4%, but ticked up to 62.3% in May from 62.2% in April.

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  1. Marketwatch. “U.S. Economic Calendar.”

  2. Bureau of Labor Statistics. “Employment Situation Summary.”

  3. Bureau of Labor Statistics. “Job Openings and Labor Turnover Survey.”

  4. Moody’s Analytics. “US Employment Situation.”

  5. BLS Beta Labs. “All Employees, Thousands, Total Nonfarm, Seasonally Adjusted.” Click on 1-Month Net Change.

  6. Federal Reserve. “The Beige Book.”

  7. Capital Economics. “Employment Report - May.”

  8. Reuters. “Exclusive: Elon Musk Wants To Cut 10% of Tesla Jobs.”

  9. Ford. “Ford Announces 6,200 New UAW Jobs in the Midwest.”

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