US hiring accelerated in May as employers added a booming 339,000 jobs and the labor market shrugged off high interest rates and persistent inflation.
The Labor Department said Friday that the unemployment rate, which was calculated from a separate survey of households, rose from a five-decade low of 3.4% to 3.7%. This is the highest since October.
Economists polled by Bloomberg estimated that 195,000 jobs were added last month.
Also, salary gains for March and April were adjusted to a total of 93,000, representing stronger hiring in late winter and early spring than expected.
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The labor market has been remarkably strong despite aggressive rate increases by the Federal Reserve aimed at curtailing hiring and wage growth, and fighting inflation.
Fed officials have said they may pause interest rate increases at this month’s meeting, but May’s blockbuster jobs report and more worrying data on inflation later this month could derail that plan.
Standard & Poor’s 500
The main stock index, the Standard & Poor’s 500, rose 61 points, or 1.4%, to 4,282 in early afternoon trading Friday, while the Dow Jones Industrial Average rose 635 points, or 1.9%, to 33,697. Indices got a boost After the jobs report, which also showed, perhaps most importantly for markets, that pay increases for workers also slowed even as hiring boosted. Wages are the driver of inflation.
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10-year Treasury yield
Traders are increasingly expecting the Fed to follow through with a pause in rate hikes in July, according to data from CME Group. This helped push Treasury yields higher. The yield on the 10-year Treasury rose to 3.63% from 3.60% late Thursday. Helps determine rates for mortgages and other important loans.
The two-year Treasury yield, which moves more based on expectations for the Fed’s action, rose to 4.41% from 4.34%.
What is the wage growth rate?
In a more encouraging sign, despite last month’s hiring frenzy, average hourly earnings rose 11 cents to $33.44, dropping the annual increase to 4.3% from 4.4%. This should give the Fed some consolation in increasing wages and continuing to gradually moderate inflation.
“The data shows that job growth continues at a rapid pace, but wage pressures are not increasing,” says Rubela Farooqui, chief US economist at High Frequency Economics. Despite the strong gains in jobs, she says a modest increase in median wages should keep the Fed on track to keep interest rates steady this month.
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What industries are seeing job growth?
Professional and business services led job gains with 64,000. Health care added 52,000; The leisure and hospitality sector, the sector hardest hit by the pandemic, added 48,000, mostly in restaurants and bars; and construction 25,000. The government added 56,000 jobs, mostly in state and local agencies.
Manufacturing, which has contracted for six straight months, has cut 2,000 jobs.
Job growth overall has slowed in recent months as interest rates rise and recession fears grow, but the numbers have been volatile. Companies frustrated with a pandemic-related worker shortage continue to snap up workers and reduce layoffs. Unusually hot weather has also boosted job growth in recent months.
Employers posted a historic high of 10.1 million jobs in April, up from 9.7 million in the previous month and reversing a recent slowdown, Labor said this week. At the same time, the number of people leaving their jobs fell to a two-year low in a sign that workers are less confident in their ability to switch jobs to achieve big wage increases, a positive development from the Fed’s perspective.
Homebase, which makes employee scheduling software for small businesses, said wages fell last month for the first time since 2021.
While worker shortages baffle employers, they have been declining across much of the United States as Americans have been sidelined by the pandemic’s candidate to return to the work force. Goldman Sachs says companies are still struggling to find the employees they usually bring in early in the year ahead of the spring hiring season, leaving a lower labor supply that was likely to dampen job growth in May.
The research firm says employment tends to pick up in June as high school and college students seek summer jobs.
Another factor affecting salary gains in May was tougher bank lending standards following the collapse of several regional banks that were plagued by an outflow of deposits. Industries such as restaurants and hotels rely on credit to pay workers. Tighter loan standards would likely cut job growth by about 25,000, Goldman estimates.
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