President Joe Biden comments on May’s employment report.
The US economy continued to look healthy work growth in May, indicating that the labor market remains strong despite growing fears of a recession amid high inflation and an increasingly aggressive Federal Reserve.
Employers added 390,000 jobs in May, the Labor Department said in its monthly payroll report released Friday, surpassing the 328,000 jobs forecast by Refinitiv economists. The unemployment rate, meanwhile, remained stable at 3.6%, the lowest level since February 2020.
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Employment gains were broad-based, with the largest increases in the leisure and hospitality industry, battered by the pandemic (84,000), professional and business services (75,000), and transportation and storage (47,000). Almost all industries gained positions last month, with one notable exception: retail, which eliminated nearly 61,000 jobs.
“This doesn’t look like a job market about to enter a recession,” said Daniel Zhao, a senior economist at Glassdoor job review website. “Labor earnings were healthier than expected and the labor force participation rate rose. Despite concerns about a slowdown and even a recession, the fundamentals of the labor market appear healthy.”
Companies are eager to hire new employees and are raising wages to attract workers as they face labor shortages. There were approximately 11.4 million jobs open at the end of April, near an all-time high, while the number of Americans quitting is also well above pre-pandemic levels.
But the strong labor market is partly fueling record inflation, as millions of workers are seeing their biggest earnings in years, the result of companies competing with each other for a limited number of employees. Revenue rose 5.2% in May from a year earlier, well above the pre-pandemic average of 3%. However, there are indications that growth could moderate, with gains rising by only 0.3% per month, slower than expected by Refinitiv.
A “We’re Hiring” sign outside a Walmart store in Torrance, California, USA on Sunday, May 15, 2022. (Photographer: Bing Guan / Bloomberg via Getty Images / Getty Images)
With rising wages across the economy, many companies have reported that they are passing the cost on to customers. Americans across the country pay more for everyday goods, such as food, gasoline, cars, and health care, which has eroded much of the earnings workers have seen. Rising prices have been bad news for President Biden, who has seen his approval rating plummet as inflation rises.
Inflation has also forced the Federal Reserve raise interest rates at the fastest pace in two decades. Central bank policymakers raised the short-term interest rate by 50 basis points in May and noted similarly similar rises on the table at the next June and July meetings.
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Employment growth in May is likely to be high enough to keep the Fed on track with its aggressive rate hike plan. Shares fell after the report, reflecting fears of rising interest rates.
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“Good May figures will only encourage the Federal Reserve to continue its more aggressive monetary tightening course, as inflation remains close to 40-year highs,” said Andrew Viteritti, a senior member of the US Federal Reserve. forecast by the Economist Intelligence Unit.
The Fed’s increasingly falcon position is likely to create new burdens for businesses. Rising interest rates tend to create higher rates for consumer and business loans, which slows down the economy by forcing entrepreneurs to cut spending. A growing number of Wall Street firms, such as Bank of America, Deutsche Bank and Fannie Mae, are now forecasting an economic downturn in the next two years.
Fed Chairman Jerome Powell has acknowledged that there could be some “pain associated” with declining inflation and declining demand, but has rejected the notion of an impending recession, identifying the labor market and strong consumer spending as the bright spot of the economy. However, he warned that a soft landing is not guaranteed.
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“It’s going to be a difficult task, and it’s gotten harder in the last two months because of global events,” Powell said earlier this month during a live Wall Street Journal event, referring to the war in Ukraine and the COVID blockades in China.