Despite a number of challenges, the U.S. economy continued to create employment in May, with nonfarm payrolls expanding faster than anticipated, according to data released by the Labor Department on Friday (June 2, 2023).
More than the 190,000 Dow Jones estimate, payrolls in the public and private sectors rose by 339,000 for the month, creating more jobs for the 29th consecutive month.
The unemployment rate rose to 3.7% in May against the estimate for 3.5%, even though the labor force participation rate was unchanged. The jobless rate was the highest since October 2022, though still near the lowest since 1969.
Average hourly earnings, a key inflation indicator, rose 0.3% for the month, which was in line with expectations. On an annual basis, wages increased 4.3%, which was 0.1 percentage point below the estimate. The average workweek fell by 0.1 hour to 34.3 hours.
The Dow Jones Industrial Average rose more than 400 points in early trade as a result of the report’s favorable market reaction. Treasury yields increased as markets absorbed both the positive jobs report and the congressional debt agreement.
“The U.S. labor market continues to demonstrate grit amid chaos from inflation to high-profile layoffs and rising gas prices,” said Becky Frankiewicz, president and chief commercial officer of Manpower Group. “With 339,000 job openings, we’re still rewriting the rule book and the U.S. labor market continues to defy historical definitions.”
May’s hiring jump was almost exactly in line with the 12-month average of 341,000 in a job market that has held up remarkably well in an economy that has been slowing.
Professional and business services led job creation for the month with a net 64,000 new hires. Government helped boost the numbers with an addition of 56,000 jobs, while health care contributed 52,000.
Other notable gainers included leisure and hospitality (48,000), construction (25,000), and transportation and warehousing (24,000).
Despite the big jobs gain, the unemployment rate increased due in large part to a sharp decline of 369,000 in self-employment. The household survey, which is used to compute the unemployment rate and is typically seen to be more volatile than the survey of enterprises used for the headline payrolls statistic, saw a total decline of 310,000 people who were listed as employed.
“The upshot is that the only genuine sign of weakness in the report was the decline in average weekly hours worked to 34.3, from 34.4, which left them at the lowest level since the Covid nadir in April 2020,” wrote Paul Ashworth, chief North America economist for Capital Economics.
An alternative measure of unemployment that encompasses discouraged workers and those holding part-time jobs for economic reasons edged higher to 6.7%.
May’s jobs numbers come amid a challenging time for the economy, with many experts still expecting a recession later this year or early in 2024.
According to recent research, people are still making purchases even if they are utilizing their savings less frequently and credit cards more frequently. Spending has also been supported by a strong labor market, with job postings increasing back above 10 million in April as firms continue to struggle to fill unfilled positions.
One major potential headache appears to have been eliminated, as warring factions in Washington this week have reached a debt ceiling deal. The agreement is on its way to President Joe Biden’s desk for a signature following passage in the House and Senate this week.
There remain other issues ahead, though.
The Federal Reserve has raised benchmark interest rates 10 times since March 2022 in an effort to fight inflation that hasn’t gone away. In recent days, some policymakers have indicated a willingness to take a break in June from the succession of hikes as they look to see what impact the policy tightening is having on the economy.
However, odds for a June rate hike rose after the jobs report. Traders briefly priced in about a 38% chance of another quarter-point increase before the probability fell back to about 26%, according to CME Group data.
Other data points have shown that the manufacturing sector of the economy is in contraction, though the much larger services sector has held in expansion. The ISM manufacturing index released Thursday also showed that prices are pulling back, a positive sign for the Fed.
