The economy added 339,000 jobs in May, once again blowing past analysts’ expectations and showing the strength of the U.S. labor market — even as the unemployment rate made one of its sharpest jumps in months, from 3.4 percent in April to to 3.7 percent last month.
The mixed results could be a Rorschach test for the Federal Reserve, which has raised interest rates up to 5.1 percent, the expected ending point for 2023. That gives the central bank some liberty to see what it wants to see in the economy.
Friday’s jobs report from the Labor Department confirmed a slowing trend in wage growth.
The decline is bad news for workers but good news for the Fed, whose job it is to keep prices stable at the expense of higher take-home pay.
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The report also showed a sharp increase in unemployment for Black Americans while unemployment for Hispanic Americans tied a record-low. The civilian labor force increased by 130,000 people, while the labor force participation rate held steady at 62.6 percent.
Here’s what to take away from Friday’s jobs report.
Reductions in self-employment could be behind the unemployment spike
Some analysts Friday were paying attention to a rise in the number of people who left self-employed status to start their own businesses, implying the sharp uptick in unemployment could be more trivial than the 0.3 percentage-point increase would suggest.
“The most banal possible explanation for the weak household numbers: 412,000 people left self-employed unincorporated status [while] 302,000 people became self-employed incorporated,” wrote Adam Ozimek, chief economist for the Economic Innovation Group, a think tank and advocacy organization.
“Self employed workers [are] becoming small businesses.”
Other economists sounded a more negative tone, pointing to more general employment trends in the economy.
“Unemployment rate rose for all the wrong reasons. More employed people [moved] into unemployment and fewer unemployed workers [found] jobs,” wrote Nick Bunker, an economist with online job platform Indeed.
Wage growth is trending downward, but low-earners are still seeing gains
Wages in May rose by 0.3 percent, or 11 cents, to $33.44 an hour, the Labor Department reported. Over the past 12 months, wages have increased by 4.3 percent — a dip from a 4.4-percent annual gain in April.
“Nominal wage growth has unmistakably slowed down, and is now at levels approaching those from 2019,” University of Massachusetts Amherst economist Arin Dube confirmed.
Dean Baker, senior economist at the Center for Policy and Economic Research, noted that wages grew at 4.0 percent annual rate over the last three months and 3.9 percent rate over the last six months.
While wage growth is cooling, earners at the bottom-end of the income spectrum are still pulling in the best wage gains — one of the hallmarks of the post-pandemic recovery.
Wages for leisure and hospitality sector workers increased at a 7.9 percent rate taken over the last three months, according to Friday’s data.
“The pandemic increased the elasticity of labor supply to firms in the low-wage labor market, reducing employer market power and spurring rapid relative wage growth among young non-college workers who disproportionately moved from lower-paying to higher-paying and potentially more-productive jobs,” Dube wrote in a paper earlier this year.
Employment for Black Americans fell off a cliff in May
Black unemployment increased by nearly a full percentage point, jumping to 5.6 percent from 4.7 in April, which had been a record low.
The spike concerned some economists, who warned that Black Americans are often the first to lose their jobs as a recession takes hold of the economy.
“The increase in Black unemployment from 4.7 percent to 5.6 percent is the canary in the coal mine for the rest of the economy. The historic gains we’ve seen for Black workers were always fragile, and we’re seeing what happens when the Fed raises rates 10 times in a row,” economist Rakeen Mabud of the progressive think tank Groundwork Collaborative wrote online.
Employment for Hispanic Americans moved in the opposite direction, falling to 4 percent from 4.4 percent in April.
Those numbers follow a rise in the number of job openings, which increased to 10.1 million and brought the ratio of job-seekers to available jobs back up to 1.8.
Health care and professional services added the most jobs
The health care and social assistance sector added 74,600 jobs in May, while the professional services sector added 64,000 jobs.
Other notable contributors to May’s hiring surge include the transportation and warehousing sector with 24,200 jobs, construction with 25,000 and retail trade with 11,600.
The information service sector dropped 9,000 jobs as tech companies shed workers and grabbed headlines. Nondurable goods producers also let go of 5,000 jobs in May.
No clear answer for the Fed
The simultaneous boom in hiring and spike in joblessness poses a challenge for the Fed ahead of its next policy meeting in June.
Fed officials have been pondering whether to pause their rapid series of rate hikes, which began in March 2022, later this month.
While inflation is falling steadily and the broader economy is slowing, stubbornly high price growth and steady job gains have raised tough questions for the Fed.
Many market commentators noted that the mixed May jobs report will offer Fed officials the opportunity to cherry-pick the data they like to build a narrative for the economy that they’d most like to see.
“Job growth is humungous, but unemployment is up and wage growth slowing,” New York Times columnist Paul Krugman wrote Friday. “If you want to make the case that the economy is running too hot, and we need more rate hikes, you can find data to support that. If you want to argue that a soft landing is in progress, there are numbers for that too.”
Markets currently expect the Fed to pause at its next rate-setting committee meeting later this month.
“Not a ton to glean from this report. Things are probably fine but [we] don’t want to sound complacent. [There are] more conflicting signals in contrast to the last two reports, when job growth was uniformly impressive,” Skanda Amarnath, director of the Employ America think tank, which advocates for high levels of employment, wrote Friday.