May job additions blow past expectations as employment market keeps on trucking

Momentum slowing, but is it enough to convince Fed to hit policy brakes?

These are strange times for the national employment market, and the May jobs report from the U.S. Bureau of Labor Statistics provided the latest oddity.

Total nonfarm payroll employment across the country grew by 339,000 last month, shattering expert predictions. Economists polled by Reuters had estimated 190,000 additions, while the Bloomberg consensus forecast had anticipated 195,000 new jobs. It’s the 14th straight month that actual job additions exceeded forecasts, an astounding streak that underscores how strong the job market has been amid the turbulent economic climate with a potential downturn looming. Additionally, there were 93,000 more jobs added in March and April than were previously estimated, further highlighting the tightness of the labor market.

Additions were broad-based across several sectors. Professional and business services added 64,000 jobs, government added 56,000 and health care posted 52,000. Leisure and hospitality had another strong month, increasing by 48,000 jobs, mainly in food and drink establishments. The sector, which was gashed by lockdowns and lessened foot traffic during the height of the COVID-19 pandemic, remains 349,000 jobs below pre-pandemic levels but continues to make up ground as businesses sustain hiring to keep up with Americans who seek recreation and entertainment outside their homes.

Construction added another 25,000 positions, and while the largest monthly jump came within heavy civil engineering (which involves large-scale projects such as highways), residential building employment grew on a monthly basis as well. Year over year, residential construction jobs are up 0.8%.

“The continued strength is partially due to the years-long struggle that builders have had attracting and retaining skilled construction workers, making them less likely to part with skilled workers, even in a weaker housing market,” explained Ksenia Potapov, economist at First American Financial Corp.

But signs remain that labor market momentum, while still healthy, is eroding. For one thing, the household employment survey within the jobs report (which is a measurement of employed people, as opposed to the establishment survey, which counts created jobs) actually decreased. Labor force participation, on the other hand, held steady at 62.6% while household employment dropped by 310,000.

The establishment survey, with its much larger sample size, usually paints a more accurate picture of the labor market. Still, weakness in the household survey bumped the unemployment rate from 3.4% in April — the lowest rate in more than 50 years — to 3.7% in May. It was the largest increase since April 2020 and, not counting the worst months of the pandemic, the heftiest since 2010.

Wage growth continued to soften as well, with average hourly earnings up 0.3% after a climb of 0.4% in April. That brought annualized wage growth in May to 4.3%, down from 4.4% one month prior.

Such figures may be enough to give the Federal Reserve reason to suspend another interest rate increase, even in contrast with May’s strong hiring statistics. Wells Fargo economists Sarah House and Michael Pugliese wrote in commentary for the bank that “recent signals from key Fed officials have been dovish and more consistent with a June ‘pause’ or ‘skip.’”

But in the ongoing guessing game leading up to the central bank’s hotly anticipated meetings, it also never hurts to brace yourself. House and Pugliese said that while they lean toward the Fed keeping policy as is at its June meeting, they “would not be shocked by a rate hike either.”

“The Federal Reserve may be hoping for a soft landing, but its main priority is bringing down inflation. If the Fed perceives the economy to be too hot, it’s likely to push on the monetary tightening pedal,” Potapov added.

“The Fed remains data dependent and April’s [Federal Open Market Committee] statement did not explicitly state — only hinted — that the Fed would pause rate hikes. The above-expectation job gains in May increases the likelihood that more rate hikes are ahead.”


More Headlines