The economy crushed expectations in May and added another 339,000 jobs, showing labor market fortitude despite the Federal Reserve’s rate hiking.
The headline job growth number in Friday’s employment report from the Bureau of Labor Statistics was far more than predicted, and the job numbers for the previous two months were also increased by a combined 93,000. Monthly job growth has been averaging over 280,000 for the past three months, a pace that indicates economic strength rather than weakness.
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Still, the household survey, which is conducted separately, was a bit more of a mixed bag. The unemployment rate rose three-tenths of a percentage point to 3.7% — still a historically low figure. Additionally, average hourly earnings growth decelerated in May. The difference between the two surveys was, in part, due to a decline in self-employed workers — for instance, contractors — who aren’t included in the establishment survey.
“The data show that job growth is continuing at a rapid pace, but wage pressures are not building,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “While payrolls accelerated for a second month, we think the wage data, in particular, will give the Fed room to hold policy steady at the upcoming meeting.”
Friday’s report is being closely scrutinized as it comes against the backdrop of several major economic developments, including the Fed’s rate hikes, banking sector turmoil, and a weakened housing market.
The employment report’s household survey found that the number of unemployed persons rose by 440,000 to 6.1 million.
The labor force participation rate held steady from the month before at 62.6% in May, and the employment-population ratio was little changed at 60.3%.
It is worth noting that despite the Fed’s efforts to slow commerce to bring down inflation, the unemployment rate has only ranged from 3.4% to 3.7% since March 2022, near the lowest rates of the past half-century.
A stronger jobs report shows that rate hikes aren’t harming the labor market as much as expected and could cause the Fed to lean toward another rate hike later this month.
The reading follows several months of strong job gains, which is a bright spot in the economy that President Joe Biden has touted even as inflation keeps chewing into the paychecks of families across the country. Recent employment reports have proven surprisingly resilient, with the unemployment rate declining to multidecade lows.
This latest report, though, shows that the labor market is continuing to show signs of resilience about halfway through 2023 and lessens some fears that a recession is right around the corner.
The Fed has been hiking rates since March of last year to drive down inflation, which has been slowing on an annual basis. Earlier this month, the Bureau of Labor Statistics announced inflation fell slightly to 4.9% in the year ending in April in an update to the consumer price index, the lowest such rate since May 2021.
Meanwhile, the banking sector is still under the microscope following the sudden failure of Silicon Valley Bank in March. SVB’s downfall acted as a bit of a domino and led to a few other bank collapses, as well as some regional banks seeing their stock values plunge.
The federal government was able to step in and stymie the worst of the fallout, although economists are still closely watching the banking system, given the overall volatility of the economy amid the Fed’s rate hiking.
While the broader economy is not in a recession, many experts contend that the housing market is. Home prices are falling, a sign of just how much the market has cooled since its red-hot zenith in 2020 when the Fed slashed rates to near-zero and mortgage rates fell in response.
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As of Thursday, the average rate on a 30-year, fixed-rate mortgage was 6.79%, according to Freddie Mac. That number is up from a recent low of just under 6.1% registered in early February and up from about 3.1% at the start of last year. Mortgage rates are now the highest they have been since November.
Despite the flailing housing market, construction jobs have seemingly defied gravity. Friday’s report found that 25,000 new construction jobs were added in May and, over the prior year, construction had added an average of 17,000 jobs per month.
