The US economy continued to shed jobs in May, with nonfarm payrolls rising more than expected despite multiple headwinds, the Labor Department reported on Friday.
The number of people employed in the public and private sectors rose by 339,000 this month, more than the Dow Jones estimate of 190,000 and marks the 29th straight month of positive job growth.
The unemployment rate rose to 3.7% in May from an estimate of 3.5%, although the labor force participation rate was unchanged. The unemployment rate was the highest since October 2022 but is still near its lowest level since 1969.
The average hourly wage, a key indicator of inflation, rose 0.3% for the month, in line with expectations. On an annual basis, wages increased by 4.3%, which was 0.1 percentage point below the estimate. The average weekly working time fell by 0.1 hour to 34.3 hours.
Markets reacted positively after the report, with the Dow Jones Industrial Average rising more than 400 points in early trade. Treasury yields rose and markets digested both strong jobs numbers and a debt agreement in Congress.
“The U.S. job market continues to show courage despite the chaos — from inflation to high-profile layoffs to rising gas prices,” said Becky Frankiewicz, president and chief commercial officer, Manpower Group. “With 339,000 job openings, we’re still rewriting the rules and the US job market continues to defy historical definitions.”
May’s hiring jump was almost exactly the 12-month average of 341k in a job market that has held up remarkably well in a slowing economy.
Professional and business services added 64,000 net jobs this month. The government helped increase the number by creating 56,000 jobs, while healthcare contributed 52,000.
Other notable gainers included leisure and hospitality (48,000), construction (25,000), and transportation and warehousing (24,000).
Despite the large job gains, the unemployment rate rose, in large part due to a sharp fall of 369,000 in the self-employed. This was part of an overall decline of 310,000 in the household survey, which is used to calculate the unemployment rate and is generally considered more volatile than the establishment survey, which is used for total payroll counts.
“The bottom line is that the only real sign of weakness in the report was the drop in average weekly hours worked to 34.3 from 34.4, leaving them at their lowest since the Covid trough in April 2020,” wrote Paul Ashworth , Chief North American Economist for Capital Economics.
An alternative measure of unemployment, which includes discouraged workers and those who have part-time jobs for economic reasons, edged up to 6.7%.
May jobs numbers come at a difficult time for the economy, with many experts still expecting a recession later this year or in early 2024.
Recent data shows that consumers continue to spend money despite drawing on savings and increasingly using credit cards to pay for their purchases. A robust labor market has also helped support spending. Job vacancies rose back above 10 million in April as employers are still struggling to fill vacancies.
A major potential problem appears to have been settled as warring factions in Washington agreed this week on a debt ceiling deal. After passing the House and Senate this week, the agreement is on its way to President Joe Biden’s desk for signature.
However, other problems remain.
The Federal Reserve has hiked interest rates 10 times since March 2022 to combat persistent inflation. In recent days, some policymakers have signaled their willingness to take a break from consecutive rate hikes in June to see what the impact of policy tightening is on the economy.
However, the chances of a rate hike in June increased following the jobs report. According to data from CME Group, traders briefly priced in about a 38% chance of another quarter-point rise before the probability dropped to about 26%.
Other data points have shown that the manufacturing sector of the economy is shrinking, although the much larger service sector continues to expand. The ISM manufacturing index released on Thursday also showed prices falling, a positive sign for the Fed.