Nonfarm payrolls rose by 390,000 in May, surpassing expectations
Nonfarm payrolls rose by 390,000 in May, easily topping expectations of 325,000 payrolls added. Revisions to the preceding two months were mixed, with an upward adjustment for April more than offset by a sharp reduction of 30,000 to the previously reported March gain. Despite those adjustments, the net gain of 362,000 was still better than anticipated.
The unemployment rate was unchanged at 3.6% and remains near its most recent low of 3.5% reached in February 2020, immediately before the economy was hit hard by the onset of the COVID-19 pandemic in the United States. Rarely has unemployment been lower over the last half century, illustrating the tight labor market conditions that exist today.
The challenging hiring environment continues to create competition for workers that has driven unusually strong wage growth. Average hourly earnings rose 5.2% over the past year, but there are signs that the pace of increase may be slowing. Monthly gains in May and April were solid at 0.3%, but more in line with longer-term trends.
There is other evidence that the job market may be cooling. Job creation in May, while solid, came in at its slowest pace since April 2021, when payrolls expanded by 263,000.
Job gains were widespread but heavily tilted toward the service sector, which lagged behind goods-producing industries in the early stages of the recovery. As consumers increasingly return to activities that had been impeded by health risks or restrictions, the recovery in sectors such as leisure and hospitality has gained momentum, spurring hiring.
The notable exception was a sharp decline in retail payrolls, reflecting the recent but growing challenge for retailers that have been impacted by changing consumer spending habits. High inflation has hit some retailers harder than others, but as consumers adjust to rising prices, reduced spending on higher profit margin discretionary goods and trading down to lower-cost alternatives have taken a toll on retailer’s profitability. Not surprisingly, some retailers have responded by containing costs where they can, including judiciously trimming payrolls.
Despite a more measured pace of job creation and softening in retail sector payrolls, first-time jobless claims remain exceptionally low. Broadly speaking, employers may not be hiring as aggressively, but the appetite to lay off workers is limited, despite growing concerns about the impact of tightening conditions and slower growth.
The bottom line? Along with deceleration in the pace of economic growth, a slowdown in hiring is also apparent. Wage gains have also started to moderate — another measure of labor conditions that may have already peaked. Slower economic growth doesn’t translate to contraction though, and even with slower job creation, labor conditions remain relatively tight.
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