The economy added 272,000 jobs in May, and the unemployment rate rose one-tenth of a percentage point to 4%, the Bureau of Labor Statistics reported on Friday.
Investors had expected about 185,000 new payroll jobs and for the unemployment rate to hold steady at 3.9%.
The interpretation
“Let’s face it, the report is strong, it’s solid even though unemployment rose to 4%. It’s still running on a strong streak here,” Brian Marks, executive director of the University of New Haven’s Entrepreneurship and Innovation Program, told the Washington Examiner.
What it means … for Biden
The report is welcome news for President Joe Biden, who is suffering from high disapproval ratings related to his handling of the economy. Biden is running low on time to turn around voter perceptions of his handling of the economy before the election.
It shows the economy is still adding jobs, and, in a welcome development, the employment numbers came in better than expected.
What it means for … the Fed
The Federal Reserve is likely to interpret the continued job growth in May as an indication that its efforts to tame inflation via interest rate hikes are not yet taking a huge toll on the health of the economy.
Accordingly, Friday’s report will add to its willingness to be patient before lowering its interest rate target.
“The Fed is going to digest this and probably come back and say we’re going to hold the line on rates, and we may only be looking at one rate cut as we get toward the end of the year,” Marks told the Washington Examiner.
The underlying reality
It is important not to read too much into any one jobs report. The payroll numbers bounce around from month to month and are revised in subsequent reports.
Instead, it is helpful to look at the trend. The three-month moving average of job gains rose to 249,000.
Roughly 110,000 new payroll jobs are needed each month to keep unemployment from rising, according to the Federal Reserve Bank of Atlanta. Note, though, that a separate estimate that takes into account the full extent of recent immigration puts the number as high as 200,000.
Prime-age employment, relative to the overall population, is at the highest rate in 23 years.
Recession watch
The unemployment rate, taken from the jobs report’s household survey, is low.
Recessions entail a rising unemployment rate.
Friday’s data suggest that the United States is close to but still short of triggering one major recession indicator — namely, when the three-month moving average of the unemployment rate rises half a percentage point relative to its minimum point over the past year. This indicator, known as the Sahm Rule, signaled the start of all postwar recessions.
Industries to watch
The leisure and hospitality sector is just above the levels of employment it reached in February 2020, right before restaurants and bars were forced to shut down across the country.
Construction employment has remained robust, even as the housing market has taken a massive hit over the past few years as mortgage rates have soared alongside the Fed’s rate hikes. That’s in part because of a huge backlog of construction of multifamily housing over recent months. Economists will watch closely for any sign of slowing hiring in construction.
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Unemployment rates by race/ethnicity
The household survey also includes unemployment rates by race and ethnicity. Rates for all groups neared record lows in the past few years but appear to have drifted up recently.
