The US labour market seems to have stabilised: The economy added 172,000 jobs in May, exceeding expectations, according to new data from the Bureau of Labour Statistics released on Friday. The latest jobs report offered some reassurance regarding the stabilisation of the US labour market following a year characterised by weak and stilted job growth: Unemployment remained steady at 4.3%, while employment gains exceeded 100,000 for the third consecutive month, a trend not observed since early 2024. Job growth has proven to be significantly more robust than previously estimated in the recent months. March’s payroll gains were adjusted upward by 29,000 to reach 214,000, while the tally for April was also revised higher by 64,000, resulting in 179,000 jobs added. In light of the recent upward revisions, employment gains have averaged 188,000 jobs over the past three months and nearly 114,000 jobs per month year to date. This marks a significant improvement compared to last year, when the monthly job additions were below 10,000. “I think the job market, for the first time in a while, is moving in the right direction,” Guy Berger stated. “I wouldn’t characterise this as a job market that’s particularly ‘booming’ – it’s certainly not as vigorous as the job market in ’21 and ‘22 – but it is showing signs of warming.” Economists anticipated that employers would have added 105,000 jobs in the previous month, with the unemployment rate remaining steady at 4.3%. Recent months’ data suggests that the labour market and broader economy continue to exhibit resilience in the face of numerous shocks. However, concurrently, consumer sentiment has plummeted: Americans, already fatigued by years of elevated inflation, are experiencing pressure from a war-induced cost crunch. However, it is important to note that a protracted war could sustain elevated petrol prices, adversely affect consumer spending, increase business costs, and lead to higher prices for a range of other goods and services.
Friday’s jobs report, while indicating stronger-than-anticipated employment gains, also revealed that Americans may face increased challenges in coping with escalating inflation. Annual wage growth decelerated to 3.4% in May, down from 3.6% in the preceding month. According to the most recent forecasts for the May Consumer Price Index, set to be released next week, wage increases may be lagging almost 1 percentage point behind inflation. “It’s difficult to celebrate an acceleration of job growth when one knows that real wages are falling, and that the median worker is likely having a very difficult time keeping up with their own obligations,” Joe Brusuelas told in an interview. Summer cooling costs are projected to increase by 10.5% due to escalating electricity prices and higher temperatures. That is exerting further pressure on the financial resources of numerous Americans during a period when the prices of fuel, food, and other necessities continue to be elevated. May’s job gains exhibited a more diversified nature compared to previous months, during which healthcare employment played a pivotal role in supporting the labour market. Hiring increased in the leisure and hospitality sectors, as well as among local governments, alongside the consistently strong job creation in healthcare, according to data. In May, the leisure and hospitality sector experienced an estimated increase of 70,000 jobs, surpassing the gains recorded in April by more than twofold. The government sector contributed 52,000 jobs, with local government positions, excluding those in education, accounting for 43,500 of this total. Additionally, the healthcare and social assistance sector saw an addition of 47,200 jobs. The significant increases in leisure and hospitality, along with local government administration, may suggest a “World Cup effect” or potentially a seasonal adjustment anomaly in methodology, according to economists.
Nonetheless, Friday’s report highlighted what recent data from sources have been indicating: Hiring is beginning to expand across a wider array of industries – though the increase is modest. “We had gains in construction, we had gains in manufacturing, we had gains in transportation for the third month in a row, which is interesting to think because the sector is really getting hammered by energy prices,” Berger said. “Temporary help services has started turning around after a very long period of decline.” The temporary industry, which has predominantly experienced contraction over the past four years, has recorded five consecutive months of employment growth, according to data. Those jobs are frequently regarded as a primary signal of labour demand. The increases in temporary employment could be indicative of businesses seeking to hire amid a high-cost environment while hesitating to commit to permanent hires, as noted by Noah Yosif in a recent interview. Hiring continues to be subdued in white-collar sectors, especially within information and financial activities, which experienced job losses last month, even as there was an increase in job openings for professional and business services.
The latest job postings data released this week indicate that businesses are eager to expand their workforce; however, analysts caution that employers may be overestimating their capabilities in integrating and hiring in relation to AI. Job growth seems to be experiencing an upward trajectory; nonetheless, the labour market continues to be relatively stuck in a low-hire, low-fire equilibrium, stated Lisa K. Simon. “These industries that are hiring really strongly (health, leisure and public administration), they’re doing a lot of the heavy lifting in this big number here,” Simon said in an interview. “Beneath the surface, there remains a slight sense of uncertainty akin to a deer caught in headlights for the broader labour market.” The matching process between job seekers and employers is “broken,” Simon stated, highlighting that hiring managers are expressing difficulty in finding suitable candidates, while those in search of employment are not receiving offers, much less any responses. Data released by the Bureau of Labour Statistics on Friday indicates a concerning trend in unemployment duration. The number of job seekers who have been out of work for 27 weeks or longer has increased to nearly 2 million, marking the highest level since December 2021. “Employers are exhibiting a high degree of caution; I believe that much of the uncertainty surrounding inflation, geopolitical conflicts, tariffs, and the overall policy landscape is influencing this,” she stated. “Conversely, employees are remaining in their current positions and are not pursuing new opportunities due to a significant scarcity of options available – which explains why individuals are clinging to their jobs with great tenacity.”
The ongoing conflict in Iran and the inflationary pressures stemming from disruptions in oil supply and price fluctuations represent a substantial obstacle to sustained job growth in the current year, according to RSM’s Brusuelas. “Today’s jobs report initiates an economic symphony in two movements: The first movement features a strong, robust opening sonata structured around the labour market data,” Brusuelas stated. “However, the second, more intricate and gradual movement will be characterised by the inflation data that is set to be released next week. And that is what the Federal Reserve and policymakers should be genuinely concerned about.” Sharply rising petrol prices have contributed to a significant increase in inflation in recent months. The Consumer Price Index, the most widely utilised measure of inflation, commenced the year at 2.4% and has ascended to 3.8% as of April. The May data, set to be released on Wednesday, is anticipated to reveal that the annual rate of price increases is exceeding 4% for the first time in three years, further diminishing the purchasing power of American consumers.