Hiring jumps in May but so does unemployment
The U.S. job market shows little sign of slowing down. If anything, it’s revving up. Businesses did a lot more hiring last month than forecasters had expected.
That’s good news for workers, but could make it more difficult for the Federal Reserve to get inflation under control.
Hiring rebounded in May, as employers added 272,000 jobs, a report from the Labor Department Friday showed. Health care, hospitality and government led the way, with each adding tens of thousands of workers to their payrolls during the month,
A separate survey used to calculate the unemployment rate paints a less rosy picture of the job market, however. Unemployment inched up to 4% last month, from 3.9% in April, even as some 250,000 people dropped out of the workforce. While still very low by historical standards, that's the highest unemployment rate since January 2022.
The jump in unemployment was concentrated among young workers, under 25, many of whom may have been leaving school last month.
"I think this is a great labor market if you already have a job. It is quite a tough market if you’re just starting out and don’t yet have experience," said Julia Pollak, chief economist for the job search website ZipRecruiter.
The mixed signals could complicate the Federal Reserve's job as it tries to curb stubborn inflation. Fed policymakers are expected to hold interest rates steady when they meet next week. Investors are still betting on a rate cut by September, although the odds of that slipped on Friday after the stronger-than-expected jobs report.
Wage gains also accelerated in May, with average wages up 4.1% from a year ago. That's likely more than enough to outpace inflation, boosting workers' real purchasing power.
“Workers have seen a full year now of real wage growth and that is propping up consumer demand and spending and sort of buoying confidence among businesses," Pollak said.
Construction companies added 22,000 jobs in May, even though the construction industry typically suffers when interest rates are elevated. Manufacturing, which is also sensitive to high borrowing costs, added 8000 jobs.
One of the few industries that lost jobs last month was temporary help services, which shed more than 14,000 jobs. That's sometimes seen as an indicator of future employment trends, since businesses will often hire or fire temporary workers before adding or cutting permanent employees.
Transcript
AILSA CHANG, HOST:
Let's talk jobs. U.S. businesses did a lot more hiring last month than forecasters had expected. You see, analysts were expecting some slowdown in the job market, but if anything, it seems to be revving up. That's good for workers, of course, but it could make it more difficult for the federal reserve to control inflation. NPR's Scott Horsley joins us now to explain, Hey, Scott.
SCOTT HORSLEY, BYLINE: Hey, Ailsa.
CHANG: OK, so how loud is that revving sound from the job market?
HORSLEY: It's pretty loud. The labor department said this morning, employers added 272,000 jobs in May, lots more than had been predicted. There were lots of jobs added in health care, in restaurants, in retail, in education - really across the board. Almost every industry was hiring, even construction and manufacturing, which typically struggle when interest rates are as high as they are right now.
For almost two years now, the economy has been adding an average of about a quarter million jobs month after month. Julia Pollak, who's chief economist at the job search website, ZipRecruiter, says, not only are more people working, but their paychecks are getting bigger as well.
CHANG: Nice.
JULIA POLLAK: Workers have now seen a full year of real wage growth, and that is propping up consumer demand and spending. And it's buoying confidence among businesses.
HORSLEY: Average wages in May were up 4.1% from a year ago, which should be more than enough to keep pace with prices. It's kind of a virtuous cycle where more people are working, earning money, spending money, and then that creates demand for more workers.
CHANG: OK, that sounds awesome, but I have to ask, is there any bad news in this morning's report?
HORSLEY: Yeah. The government does two surveys every month. They first ask employers how many people are on the payroll. That's where the jobs numbers come from. They also ask individuals if they're working or looking for work, and that second survey paints a less rosy picture of the job market. It found fewer people were working last month than the month before, and the unemployment rate inched up from 3.9 to 4%. Now, Pollak notes almost all that increase in unemployment came from young people under 25, some of whom were probably just getting out of school last month.
POLLAK: So I think this is a great labor market if you already have a job. It is quite a tough market if you're just starting out and don't yet have experience.
HORSLEY: Now, even at 4%, unemployment is still very low by historical standards. But it has been creeping up in recent months, and if that continues, it could put the Federal Reserve in a bit of a pickle.
CHANG: Wait. Why is that?
HORSLEY: Well, the Fed, as we often say, has two goals - fight inflation and keep as many people working as they can. For the last couple of years, employment's been so strong, the Fed's been able to focus all of its attention on getting inflation under control by raising interest rates. So far, those high interest rates have not triggered any big spike in unemployment, but if the labor market starts to weaken, well, the Fed's going to face increased pressure to let up off the brake and lower those interest rates. Today, we got these kind of mixed signals where the unemployment rate does suggest some weakening, but the jobs number says, no, no, no. This is an economy that's still going strong. So, you know, the Fed's got its work cut out for it.
CHANG: Wait. So which way is the Fed leaning at this point?
HORSLEY: For right now, the central bank is keeping its eye on inflation, and it's keeping interest rates high. That means it's more expensive to get a car loan or carry a balance on your credit card. Fed policymakers are set to meet next week, and they are widely expected to hold interest rates steady at that meeting and probably their July meeting as well. Investors still think there's a chance the Fed will cut interest rates at the September meeting. But after today's report, they're a little less confident about that.
CHANG: That is NPR's Scott Horsley. Thank you so much, Scott.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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