Job Market Bounced Back in May With a Vengeance—And an Asterisk
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Key TakeawaysThe U.S. economy added 272,000 jobs in May, surging from a downwardly revised 165,000 in April and more than the 190,000 economists had expected, according to the Bureau of Labor Statistics.Despite the increased job growth, the unemployment rate edged higher to 4% from 3.9% in April, a separate survey of households showed.Economists consider the survey of employers more reliable than the household survey.The longer the job market stays healthy, the longer the Federal Reserve is likely to delay cutting its benchmark funds rate from its 23-year high, which has put upward pressure on interest rates for all kinds of loans.
Did the job market get better or worse for workers in May? The answer depends on whether you believe more what businesses or individuals say.Businesses added 272,000 jobs in May, surging from a downwardly revised 165,000 in April, the Bureau of Labor Statistics said Friday, based on a survey of businesses and other workplaces. The latest figure blew past the the 190,000 jobs expected by economists surveyed by Dow Jones Newswires and The Wall Street Journal.But a separate survey of households showed the unemployment rate edged higher to 4% from 3.9% in April, breaking a 27-month streak of sub-4% unemployment.Economists Generally See Business Survey as More ReliableThe two surveys sometimes move in different directions, and in such cases economists generally put more stock in the business survey because it covers more workers, making it more reliable and less prone to wild up-and-down swings from month to month than the household survey, meaning that for markets, the focus was mainly on the healthy increase in jobs."Relative to history, we're adding tons of jobs," Chris Clarke, assistant professor of economics at Washington State University, told Investopedia. "We're adding way more jobs than we used to a decade ago. It's extraordinary."Still, the uptick in unemployment was enough to add a grain of salt to a report that otherwise showed the job market regaining steam after a deceleration in April.
“The household survey is volatile and less reliable, but it shouldn’t be discounted entirely,” Ryan Sweet, chief U.S. economist at Oxford Economics, wrote in a commentary. Clarke noted that the uptick in the unemployment rate was mainly because of an influx of people seeking work, not because of an increase in layoffs.Pay Hikes Continue To Outpace InflationIn another bright spot for workers, pay increases continued to outpace inflation, with average hourly wages rising 0.4% from April, up from a 0.2% gain the month before, making for a 4.1% annual increase that beat out the 3.4% rise in the cost of living, according to the Consumer Price Index. Overall, the report showed the job market is mostly staying resilient, even though employers have cut back the number of job openings in recent months as high borrowing costs for loans have dragged on the economy.Jobs Strength Dims Hopes For Rate CutThe report was closely watched in financial markets because of how it might affect the Federal Reserve’s thinking on where it sets the key fed funds rate, which influences interest rates on all kinds of loans.The Fed has held the rate at a 23-year high since last July in an effort to curb inflation. Fed officials have worried that the roaring post-pandemic labor market, where jobs have been plentiful and raises larger than usual, could stoke inflation by creating more demand for goods and services. In recent months, Fed officials have said they’re determined to keep interest rates higher for longer to ensure that inflation is firmly on the path to a 2% annual rate before making any cuts. Signs of weakness in the labor market could prompt the Fed to cut them sooner in an effort to stimulate the economy and prevent a wave of unemployment.“The central bank is attentive to downside risks to the economy if the labor market stumbles,” Sweet wrote. “Overall, the labor market appears to be roughly in equilibrium, but the Fed needs to walk a tight rope. If they wait for concrete evidence that the labor market is bending, then it's too late.”Financial markets bet the surge of job creation would push the Fed to delay rate cuts. With cuts this summer all but out of the question, the chances for a September rate cut diminished to 50.8% from 68.3% on Thursday, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data. Read the original article on Investopedia.
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