In May, the U.S. job market unexpectedly surged, as the labor market remained surprisingly resilient even in the face of rising interest rates, declining economic growth and chronic inflation.
Employers in May, the Labor Department's monthly payroll report published Friday, easily beating the 190,000 jobs forecast by Refinitiv economists. That also marks an increase from April, when payrolls rose by an upwardly revised 294,000.
In a separate analysis of the labor market, a separate report offered a slightly different picture of the labor market. The unemployment rate rose to 3.7% from 3.4% last month, despite the labor force participation rate being unchanged. The COVID-19 pandemic caused the highest number of jobless people since October 2022 and the largest increase since the early days of the pandemic.
Wage growth also dipped last month, with average hourly earnings a key measure of inflation rising 0.3%, according to projections. In May, wages rose 4.3%, marking a year-on-year increase.
The Fed said it is closely watching the report for evidence that the labor market is finally softening after more than a year of interest rate hikes.
The surprising job gains in May, combined with the increase in unemployment and the slowdown in wage hikes, may provide fodder for both sides of the debate.
The tug of war taking place in the economy is on full display in today s mixed job report and keeps pressure on the Fed to remain hawkish, even if it gives them a reason to pause later this month, Loewengart said.
Job gains in professional and business services were broad-based last month, with the biggest gains in professional and business services 64,000 government 56,000 health care 52,000 leisure and hospitality 48,000 and construction 25,000.
This spring, a series of bank collapses is threatening to further restrict economic growth and hiring by tightening lending standards and making it more difficult to obtain a loan. Borrowers may be required to agree to more stringent terms, such as high interest rates, in order to reduce financial risk. In turn, less big-ticket spending will result in less consumer and business spending.
Last month, Fed Chairman Jerome Powell said tighter credit conditions are likely to weigh on economic activity, including hiring and inflation.
Over the past few months, there have been numerous notable layoffs, and the list continues to grow. Amazon, Apple, Meta, Lyft, Facebook, Google, IBM, Morgan Stanley and Twitter are among the companies letting workers go.
Many economists are pondering the possibility of unemployment rising as a question of when, not if.
The central bank in March predicted that the jobless rate would rise significantly and remain elevated in 2024 and 2025, as steeper rates continue to take their toll by pushing up borrowing costs. That could amount to more than 1 million job losses.
Increased interest rates lead to higher consumer and business loans, necessitating employers to reduce spending.