“The American middle class is seeing their economic standing improved. The strong wages and improving living standards are the main takeaway from this very strong jobs report,” said Joe Brusuelas, chief economist for the accounting firm RSM US.
Average hourly wage growth accelerated sharply in May to $34.91, up 4.1 percent from the previous year. Wages have consistently beaten inflation for nearly a year, in a boost to American workers’ standard of living after years of wages falling behind inflation.
In a new milestone, the share of women ages 25 to 54 who had jobs or were looking for jobs rose to 78 percent of that group, a high mark dating back to when records started being kept in the 1950s. Higher wages and plentiful opportunities have enticed women into the workforce after the child-care crisis of the pandemic pulled them onto the sidelines. Indeed, some of the largest job gains happened in sectors that tend to employ more women, including health care, government and leisure and hospitality.
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The strength of the May jobs report surprised economists, because economic growth and consumer spending have lately shown more signs of slowing down, partly weighed down by higher costs of borrowing, according to recent federal data. It also marked the 41st consecutive month of job gains, going back to January 2021.
That’s good news for President Biden, who has been making the case that his economy has reinvigorated the middle class on the campaign trail. Biden said in a statement Friday that May’s jobs numbers indicate that “the great American comeback continues,” boasting that under his presidency, “15.6 million more Americans have the dignity and respect that comes with a job.” He also noted, in a nod to gloomy consumer sentiment that could cost him at the polls, that “more progress” needs to be made to tamper inflation.
The hotter-than-expected data complicates the path forward for Federal Reserve policymakers, looking for more concrete signs of an economic cool down, confirming that inflation has fallen enough that they can start to lower interest rates.
Indeed, financial markets opened lower on the jobs news in trading activity Friday morning, as investors had been hoping for an interest-rate cut in coming months. Markets were back in positive territory by midday.
Health care led the way on jobs, with 68,000 new positions in May, with large gains in hospitals and nursing and residential care facilities. The sector has faced enormous demand since the pandemic began, thanks to the needs of an aging baby boomer population.
Meanwhile, the public sector added 43,000 jobs, largely in local government. City and county governments have been hiring workers, particularly teachers, through higher wages, after facing severe labor shortages in recent years. Local governments also tend to pour resources into hiring police officers and other staff during major election years.
Leisure and hospitality, a major driver of recent job growth, after the pandemic shutdown decimated the sector, added 42,000 jobs in May, mostly in restaurants and bars.
Professional, scientific and technical services — composed of white-collar industries such as consulting and law — also saw a glimmer of hope with its first major boost in months, adding 32,000 jobs in May. That’s nearly double the sector average monthly increase over the past year.
“This particular industry was hit very hard by interest rates so they’ve had a really lackluster past year,” said Kory Kantenga, head of economics Americas at LinkedIn. “But if they’re anticipating [interest] rates coming down, then they’re more likely to staff up.”
Employers in construction, manufacturing, trade, warehousing and transportation, and financial activities — all sensitive to higher interest rates — saw little or no growth last month.
Despite the strong report, there are other signs of softening in the labor market.
The unemployment rate edged up for Latinos, Asians, teenagers and adult men, and unemployment jumped for African Americans in May, hitting 6.1 percent, up from 5.6 percent in April.
Economists monitor closely the unemployment rate for African Americans, a group vulnerable to weaknesses in the labor market, but cautioned against reading too closely into May’s jump in unemployment unless the trend continues.
Job openings fell to a three-year low in April, according to a separate report from the Labor Department this week. The ratio of job openings to unemployed workers is finally back down to pre-pandemic levels.
Previously elevated levels of job openings had led to high rates of people quitting jobs and worker shortages, giving employees more leverage in the job market during pandemic recovery. However, those labor shortages sparked concern among policymakers at the Federal Reserve hoping to tame surging inflation at the time.
Most signs point to a job market in a healthy spot. Layoffs remain near historic lows as employers are cautious to let people go; workers are staying in place, rather than switching jobs at the elevated rate of the pandemic’s end, when employers had to compete fiercely to keep up with demand.
“You have to zoom out and look at the overall picture,” said Julia Pollak, chief economist at ZipRecruiter. “This is a new normal — a less dynamic and more stay-in-place labor market where companies aren’t firing people quite as much and people aren’t switching jobs quite as much. As a result, companies aren’t having to hire quite as much either.”
One reason that the labor market has grown steadily over the past year, boosting the overall economy as job openings fell, is due to a major pickup in immigration that helped close long-standing labor shortages. More than 3 million immigrants arrived in the United States in 2023, according to data from the Congressional Budget Office.
Biden’s new plan announced this week to shut off access to the U.S. asylum system when illegal border crossings surpass a daily threshold could change labor market dynamics.
“Immigration has played a very important role in bolstering our economy,” said Brusuelas, chief economist for the accounting firm RSM US. “If we do see a curtailment of immigration, then I would expect that would create a tighter labor market. That would likely send the unemployment rate down and cause wages to rise.”
