The U.S. economy keeps throwing curveballs, and the May employment report is the latest example.
Employers added 272,000 jobs last month, the Labor Department reported Friday, well above what economists had expected as hiring had gradually slowed. That’s an increase from the 232,000-job average over the previous 12 months, scrambling the picture of an economy that’s relaxing into a more sustainable pace.
Most concerning for the Federal Reserve, which meets next week and again in July, wages rose 4.1% from a year ago — a sign that inflation might not yet be vanquished.
“For those who may have thought they would see a July rate cut, that door has largely been shut,” said Beth Ann Bovino, chief U.S. economist for U.S. Bank. Although wage gains are good for workers, she noted, persistent price increases undermine their spending power.
Stocks fell shortly after the report was published, then recovered most of their losses by the end of the day. Government bond yields, which track expectations for Fed rate moves, rose sharply and remained elevated through the trading day.
But the portrait of an accelerating labor market isn’t perfectly clear, either. In another part of the report, the unemployment rate ticked up to 4%, its highest point since January 2022. That number is drawn from a survey of households, which showed essentially no employment growth for the past year and rising part-time employment that had displaced full-time positions.
The data from employers that generates the job growth number tends to be more reliable, but the household survey has recently been more consistent with other indicators. Retail sales have flattened. The growth rate of gross domestic product declined markedly in the first quarter. The number of job openings is as low as it has been since 2021.
That’s why most economists have expected employment growth to continue slowing, and the unemployment rate to rise further this year.
“Other than health care, we’re not seeing as much strength in the data,” said Parul Jain, chief investment strategist with MacroFin Analytics. “Growth in 2024 is unlikely to be very strong, consumers are pulling back quite a bit, and we expect that disposable income is also going to be affected.”
Health care has been the backbone of hiring for 2 1/2 years, delivering 18.6% of the jobs added. An aging population has driven demand, and rising insurance coverage through the Affordable Care Act has given more people access to care.
On the other hand, leisure and hospitality — which was harmed more than any other sector by COVID-19 lockdowns — took until April to regain its February 2020 employment level. Forecasts of a record summer travel season may propel that number higher in the coming months, though few expect job growth to outdo last year’s numbers.
United Airlines, for example, announced this week that it expected to add 10,000 jobs this year, down from 16,000 in 2023 and 15,000 the year before that, as pandemic recovery transitions into organic growth.
One reason job growth surpassed forecasts was government employment, which has been recovering quickly but was expected to slump as federal pandemic relief funding runs dry. The sector instead added 43,000 jobs in May. But a slowdown may still be in the offing.
It’s already apparent to Peter Finch, the superintendent of West Valley School District outside Yakima, Washington. Funding in the American Rescue Plan Act had allowed him to add staff members such as mental health counselors and tutors, but now he’s no longer filling positions as people leave.
“It’s a difficult time in education,” Finch said. “If you have less resources, you cannot deliver the same services you had in the past — that’s the reality.”
The labor market’s impressive run has been fueled both by a rebound in legal immigration and by an influx of millions of migrants with temporary status, many of whom have found work with the aid of accelerated work permits. According to calculations by the W.E. Upjohn Institute for Employment Research, hiring has fallen sharply for native-born workers, but it has held up for those born outside the country.
That impact may also fade as President Joe Biden’s executive order limiting asylum-seekers at the southern border takes effect.
One favorable sign about the workforce: The share of people ages 25-54 who are working or looking for work reached its highest level since early 2002, at 83.6%. Women in that age bracket have led the way, and in May reached their highest participation rate on record.
The picture is not as rosy for adults in their early 20s, whose participation rate dropped in May. As employers hold on to their workers and fewer leave voluntarily, there is less room for those with little work experience, who have been finding jobs at lower rates.
Workers over 55 have also not returned to the workforce in large numbers — their participation rate remains 2 full percentage points below where it was before the pandemic. But some people have been driven back as costs have risen and retirement funds haven’t quite been able to cover them. Take John Refoy, 67, who retired from the Navy after 33 years as a maintenance technician. He moved to Flagstaff, Arizona, to be closer to his sister during the pandemic. As rent and food costs rose — and a Subaru Outback cost more than he had expected — Social Security and a civil service pension no longer paid the bills. So late last year, he applied for a job at Walmart.
Working full time in the bakery and deli department — a job that now pays $20 an hour, after years of wage increases — has doubled his income.
“It makes all the difference,” Refoy said. He will probably leave the job next year when the car is paid off, he said, but he enjoys the social interaction. “It’s a great group of people,” he added, “and it’s been really beneficial for me to get back out there to work.”
Biden chose to focus on the job-creation side of the report.
“On my watch, 15.6 million more Americans have the dignity and respect that comes with a job,” he said in a news release. But in a nod to deep concerns about stubborn inflation, Biden also emphasized his efforts to bring down prices.
The path of the labor market heading into the fall carries deep implications for the coming election. And while most forecasters see growth fading, the likelihood of an outright recession is as low as it has been in several years, barring some external event like an escalation of wars or an unforeseen financial crisis.
“We could be just teetering along right where we’d want to be at a steady equilibrium,” said Brad Hershbein, deputy director of research at the Upjohn Institute, “where things are mostly hunky dory, inflation continues to come down, the labor market returns to a place where we’d be expecting between 150,000 and 175,000 jobs per month.”
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