The U.S. experienced significant job growth during May. Employment growth was expected; the job market surpassing its projected estimate was not. The U.S. unemployment rate held steady at 3.6%, matching pre-pandemic rates.
The nonfarm payroll figure is an essential indicator of the U.S. employment rate, which refers to any job outside of farms, government employees, private household employees, and nonprofit employees.
According to economists polled by Reuters, the most up-to-date data shows that more than 390,000 nonfarm payrolls were added to the job market in May. Original projections sat around 325,000.
While 390,000 added jobs are nothing to scoff at, there are two factors to note when considering their impact on the economy and inflation.
The first is that May saw the least job growth in the last 12 months. However, it did soar above the job growth rate of 2019.
To compare, April had a nonfarm job growth of 436,000. This data shows a moderate growth pattern.
However, according to Reuters, economists are uncertain about the cause of this growth, with many suspecting that a cooling labor market and worker shortages are the most likely contributing factors. They are urging investors to instead focus on the unemployment rate and wage increases as indicators of the job market’s health.
Data showed 11.4 million job openings at the end of April, which equates to two open positions for every unemployed person.
The second factor is what that job growth means for the economy. As the job rate increased, overall wages grew as well, which itself is not a bad thing.
However, astronomically high inflation signals that the Fed may continue its aggressive monetary policies and continue to raise interest rates. Powell must walk a fine line: he is pushing for the Fed to tame inflation by raising interest rates, but he does not want to drive up the unemployment rate.
Christopher Rupkey, the chief economist at FWDBONDS, stated, “The economy is miles away from being wrecked on the shores of recession with the economy continuing to hire workers at this fast of a clip.”
He then offered his opinion on what the Fed will need to do, stating, “It is not slowing enough to put the inflation fire out. The Fed’s work is not done.”
Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina, stated, “This report is going to continue to exhibit signs of a tight labor market and when combined with the elevated inflation environment we are in, it further gives the Fed the confidence that they need to stay on their substantial monetary policy tightening path.”
The leisure and hospitality industry experienced the bulk of the recent job growth, seeing 84,000 new jobs. Of those 84,000, 46,000 were attributed to restaurants and bars. Nearly every other industry saw growth but at a lesser pace.
According to Reuters, some economists viewed May’s average hourly earnings, which increased 0.3% for a total 5.2% annual increase (down from April’s 5.5%), as a sign that wage inflation has peaked and should begin to cool.
This downturn is not enough to stave off inflation worries, however.
According to Michael Pearce, a senior U.S. economist at Capital Economics, “It will take a slowdown in annual wage growth closer to 4% before the Fed can claim it is making significant progress towards its inflation goal.”