The Labor Department said on June 5 that US employers added 172,000 jobs in May and the unemployment rate remained steady at 4.3%, further confirmation of an economy that continues to deliver positive surprises.
Job gains were concentrated in leisure and hospitality, local government and health care. Average hourly earnings rose 0.3%, more than April. The report rejected analysts’ expectations of a rise of 85,000.
Stock futures were little changed after the report.
Why is the job report so important?
Investors, economists, financial analysts and policymakers of all types consider the Labor Department’s first-ever Friday jobs report as one of the vital keys to understanding the U.S. economy.
“It helps 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 ahead of the report’s release.
Professionals have faced a difficult time assessing the economy in recent months. Measures of consumer sentiment are at an all-time low, even as employment has been steady, not blockbuster. Inflation has been at its peak for longer than most forecasters expected, and it has worsened this year amid the Iran war, yet Americans have continued to spend.
“For households, the key question is what this means for job security, income growth, borrowing costs and monthly budgets,” Sorrentino said. Regardless of all the implications for fiscal and monetary policy, he said, “Consumers should remain focused on their financial picture and be thoughtful about spending, debt and saving.”
How strong has the job market become?
Data released ahead of Friday’s report suggests the job market is holding up.
Among other things, the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS), released June 2, showed that vacancies have reached the highest level in nearly two years.
In April, professional and business services saw the largest increase, with an increase of 668,000 jobs, a record since the report’s origins in 2000, Ken Kim, a senior economist at KPMG, said in an analysis.
Other measures of job market health have also been surprisingly strong. Gusto, which processes payroll for more than 500,000 small businesses, said June 2 that those companies added 83,900 net new jobs last month, the fourth consecutive month.
And payroll processor ADP said in its June 3 report that 122,000 new private sector jobs were added in May. However, the ADP’s track record in predicting Labor Department reports has been imperfect in the past.
Sorrentino said, “The labor market has shown signs of cooling in some areas, but from what we see on Main Street, many businesses are still afloat, hiring selectively, investing cautiously and adapting to higher costs. This points to an economy that is softening rather than falling off a cliff.”
What does the jobs report mean for the Fed?
Because inflation remains high and the economy continues to grow, traders have begun to expect an interest rate increase rather than a cut this year. As of Friday morning, the CME FedWatch tool projected a 38.5% chance that rates would be higher by the end of the year, and only a 2% chance that they would be lower.
“We believe the Federal Reserve will need to raise rates in the autumn,” KPMG’s Kim wrote on June 2.
Many economists expect the central bank to take initial steps toward preparing 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 noted the need to consider “readings on labor market conditions, inflation pressures and inflation expectations”. If inflation is listed first in the June meeting, it could signal a change in strategy.
Reach Rachel Barber at (email protected) and follow her at x @rachelbarber_.
