Quick Bites | US Jobs Market Gives Mixed Signals

The American labour market delivered robust jobs growth in May, the US Labor Department reported, even as the unemployment rate ticked up. The pace of hiring showed a gain of 272,000 jobs, but it wasn’t all good news: the unemployment rate ticked up to 4%.

Source: New York Times

The unexpectedly strong hiring shows that employers remain undaunted, despite pressure from high interest rates and slowing consumer spending. However, there were some mixed signals in the report, with results from a survey of households painting a weaker picture than a survey of businesses. Here are some of the details:

  • Services powered the gains: Overall, US employers added 272,000 jobs last month, with health care accounting for the most growth, adding 68,000 jobs. Government hiring rebounded from April, with 43,000 additional jobs, as did leisure and hospitality work, with 42,000.
  • Wages were strong: Average hourly earnings rose 4.1% from a year earlier. That was also stronger than expected since wage increases have been easing since early 2022. Wage growth isn’t the primary reason that inflation has been high, but economists worry that it will be difficult to bring inflation fully under control if pay keeps rising at its recent pace.
  • The unemployment rate rose: The jobless rate hit 4% for the first time since January 2022, ending one of the longest streaks of sub-4% unemployment on record.
  • A mixed message: The household survey, from which the unemployment rate is drawn, flashed warning signs, showing 408,000 fewer people working in May than in April. That data has been out of joint for some time with the survey of employers, from which the job growth figure is tallied, suggesting revisions down the line.

Source: New York Times

The report was not what US Federal Reserve (Fed) officials had been hoping for. They would like to see slowing job and wage growth and continued low unemployment. Instead, the report showed accelerating job and wage growth and rising joblessness. In the end, the data is unlikely to affect the Fed’s decision on interest rates, when most economists expect policymakers to leave rates unchanged.

The headline jobs number is a source for celebration for President Biden: “On my watch, 15.6 million more Americans have the dignity and respect that comes with a job,” he said. But Biden is trailing in the polls, possibly indicating that Americans care more about high prices than they do about plentiful jobs.

Stocks were flat and government bond yields rose as the report raised concerns that inflation’s gradual decline could yet stall. That has led investors to reduce bets on the Fed cutting interest rates in the near future, implying that historically high rates will continue to weigh on the economy for many months to come.