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U.S. employers added 172,000 jobs in May and the unemployment rate held steady at 4.3%, the Labor Department said June 5, further confirming an economy that continues to deliver positive surprises.
Employment gains were concentrated in leisure and hospitality, local government, and health care. Average hourly wages increased by 0.3%, accelerating from April. The report exceeded analysts’ expectations for an increase of 85,000.
Stock futures prices were little changed after this report.
Why are job reports so important?
Investors, economists, financial analysts, and policymakers of all kinds consider the Department of Labor’s first Friday jobs report to be one of the key keys to understanding the U.S. economy.
“This will help shape the outlook for wages, consumer confidence and the Federal Reserve’s next steps,” Frank Sorrentino, founder and CEO of ConnectOne Bank, said in an email to USA TODAY before the report was released.
Experts have been struggling to assess the economy in recent months. Consumer sentiment indicators are at an all-time low, even as employment remains steady, if not a huge hit. Inflation has remained high for much longer than most forecasters expected and worsened this year amid the Iran war, yet Americans continue to spend.
“The key question for households is how this will affect job security, income growth, borrowing costs and monthly budgets,” Sorrentino added. Despite all the implications for fiscal and monetary policy, he said, “consumers need to remain focused on their financial situation and continue to be thoughtful about spending, borrowing and saving.”
How strong is the job market?
Data released before Friday’s report suggested the job market was gaining footing.
In particular, the Department of Labor’s Job Openings and Turnover Survey (JOLTS) released on June 2nd showed that the number of job openings had increased to the highest level in about two years.
Ken Kim, senior economist at KPMG, said in his analysis that professional and business services saw the biggest growth in April, with employment increasing by 668,000, a record that dates back to the beginning of the report in 2000.
Other measures of the health of the job market are also surprisingly positive. Gusto, which processes payroll for more than 500,000 small and medium-sized businesses, announced on June 2 that these companies added 83,900 net new jobs last month, marking the fourth consecutive month of growth.
Additionally, payroll processing company ADP announced in a June 3 report that 122,000 new private sector jobs were added in May. But ADP’s track record of predicting the Department of Labor’s report has been spotty to date.
“While the labor market is showing signs of cooling in some areas, what we see on Main Street is that many businesses are still open, hiring selectively, investing cautiously, and adapting to higher costs. This shows the economy is slowing rather than falling off a cliff,” Sorrentino said.
What does the jobs report mean for the Fed?
With inflation remaining high and the economy continuing to grow, traders are increasingly expecting interest rates to rise rather than cut this year. As of Friday morning, the CME FedWatch tool predicted a 38.5% chance of interest rates rising by the end of the year, and just a 2% chance of falling.
KPMG’s Kim wrote on June 2: “We believe the Fed will need to raise rates in the fall.”
Many economists expect the central bank to take the first steps to prepare markets for such a move at its next meeting on June 17.
The Fed’s signal will come from the order in which it lists risks to the economy in its meeting statement. In recent months, policymakers have said they need to consider “readings on labor market conditions, inflation pressures, and inflation expectations.” If inflation comes up first at the June meeting, it could signal a shift in strategy.
Contact Rachel Barber rbarber@usatoday.comFollow her on X @rachelbarber_and subscribe to her newsletter Making More of Your Money here.
