The economy added 390,000 jobs in May, showing resilience in the face of rampant inflation and higher interest rates, the Labor Department reported on Friday.
The unemployment rate, meanwhile, held steady at 3.6%, remaining near historic low levels. Wage growth slowed slightly, increasing 0.3%, below forecasts for a 0.4% gain.
It was the first full month of data to reflect any effects from the Federal Reserve Board’s May pivot to a tighter monetary policy, following the central bank’s early May 50-basis point hike in interest rates.
“Notable job gains occurred in leisure and hospitality, in professional and business services, and in transportation and warehousing. Employment in retail trade declined,” the report said.
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Economists had forecast a gain of 325,000 following April’s addition of a revised 436,000 jobs.
“The labor market is still very tight,” says Becky Frankiewicz, president of ManpowerGroup North America. “We still have more demand than we did a year ago.”
Still, she says, there is a process of “normalization” underway that has seen hiring shift from the frantic pace following the recovery from the coronavirus pandemic.
Mathieu Stevenson, CEO of Snagajob, agrees, adding that, “Broadly, we are starting to see a bifurcation, with white collar cooling off somewhat but the more blue-collar end of the spectrum not the case.”
But, he adds, “By any stretch of the imagination this is a much tighter labor market than even in 2019.”
A national survey released Thursday by LinkedIn confirms that. The LinkedIn Workforce Report finds that hiring in May was up 9.8% from a year ago and 10% above pre-COVID levels. Industries that have seen the strongest recent gains include health care, construction and accommodation.
And there is a distinct geographic tilt to the increase in hiring, with Houston, Atlanta and Phoenix leading the way.
One noticeable trend: “In the tech sector, hiring rose by 2.1% in May compared to April, though it has been flat since the beginning of the year,” the survey found. “While largely flat, this industry has seen massive hiring gains overall; hiring in tech has increased 17.5% year over year and is 23.5% above pre-COVID levels.”
The shift in hiring is key to plans by the Federal Reserve to slow the pace of inflation. The Fed raised interest rates by 50 basis points in May with plans to do more of the same in the coming months. The goal is to damp down consumer demand, and also hiring, without tipping the economy into recession.
And the early results suggest that is happening.
“We’re starting to see the data come in a little more mixed than the synchronized surge we saw after the pandemic,” says Ellen Gaske, lead economist for the G10 group at PGIM and a former senior economist at the Federal Reserve Bank of New York.
ADP’s monthly employment report issued Thursday showed a drop in small business hiring of 91,000 amid an overall increase of 128,000. Large employers, those with 500 employees or more, were responsible for 122,000 of those.
“I think there is a lot of uncertainty in the market right now,” says Pete Lamson, CEO of human resources software company Employ. “I expect some modest softening in the coming months.”
Steve Rick, chief economist at CUNA Mutual Group, said: “It is encouraging that May’s jobs report exceeded expectations despite forecasts of a potential recession, poor Q1 GDP growth rate and rampant market volatility.”
“We expect the jobs numbers to remain strong this year and the economy, as measured by the growth in real GDP, to rise by 3% in 2022, above the natural long-run growth rate of 2%. I am hopeful about the coming year, but rising inflation, market turbulence and geopolitical uncertainty remain a threat to the stability of the job market,” Rick added.