Hiring surged in May, indicating the job market remains resilient despite high interest rates and still-elevated inflation.
Employers added 339,000 jobs last month, accelerating the pace of hiring in April, the Labor Department reported Friday. That's far above economists' expectations for about 190,000 new jobs.
Hiring was broad, with jobs added in construction, transportation, leisure and hospitality, professional and business services, health care and social assistance and government.
"The labor market continues to move full speed ahead, with the biggest gains in the services sector," noted Bright MLS chief economist Lisa Sturtevant in an email after the numbers were released.
The unemployment rate also rose, to 3.7% from 3.4%, as more people entered the job market and some people lost jobs. The jobless rate only counts people who do not have a job and are actively looking for one.
Wage growth held steady, with average pay for non-managers growing by nearly 5% and average pay overall growing slowing a tick to a 4.3% increase over the previous 12 months.
However, the report also showed signs of weakness. The unemployment rate for Black workers, which hit a record low in April, rose by nearly a full percentage point in May, and the length of the average workweek ticked down to 34.3 hours — roughly where it was in late 2019.
The monthly jobs report is compiled from two separate surveys — one of businesses and one of households, with the latter contributing to the unemployment rate. The two can sometimes conflict.
"The two sides of this report are telling different stories," said Nick Bunker, head of economic research at Indeed.
"The large spike in the unemployment rate, from 3.4% to 3.7%, is the largest monthly increase since the early days of the pandemic as both more employed people entered unemployment and fewer unemployed people found a job," he said.
Bunker added, "And an even larger and arguably more concerning spike in the Black unemployment rate threatens to reverse substantial gains made over the past few years. It is only one month of data, and it can be easy to overreact, but certain red flags cannot be ignored."
What will the Fed do?
The Federal Reserve is paying close attention to the labor market as it decides whether to hike interest rates at its meeting later this month. Most economists expect Fed officials to keep rates steady at their June 13-14 meeting to allow time to assess how their previous rate hikes have affected the inflation pressures underlying the economy.
Higher rates typically take time to affect growth and hiring, and if the Fed raises its key rate too quickly, it risks pushing the economy into a deep recession.
"The decision on the federal funds rate will probably come down to the wire and to whether Fed officials put more importance on the nonfarm payroll number or on the household survey number, which is from where the rate of unemployment is calculated," Eugenio Aleman, chief economist at Raymond James, said in a note. "Employment in the nonfarm payroll survey was completely the opposite to what the household survey showed."
Stock futures jumped after the report was released, indicating investors expect interest rates to stay flat.
With reporting by the Associated Press.
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