The U.S. experienced healthy job growth in May. This shows that the labor market is strong, despite growing fears of a recession from sky-high inflation and an aggressive Federal Reserve.
According to Friday’s Labor Department Monthly Payroll Report, 390,000. More jobs were created by employers than was predicted by Refinitiv economists. The unemployment level remained at 3.6% which is the lowest level since February 2020.
There were broad-based job gains, with the greatest increases in the pandemic-hit leisure and hospitality industry (84,000), professional and business services (75,000), transportation and warehouses (47,000), and professional and business services (75,000). Retail lost almost 61,000 jobs.
Glassdoor’s senior economist Daniel Zhao stated that it does not appear like the labor market is about to enter a recession. “Job gains were stronger than expected and the labor force participation rate ticked up, which suggests that there is no imminent recession.
Businesses are eager to hire employees as they face a shortage of workers. To attract workers, businesses are raising wages at an unprecedented number. This is a record number, but it’s still well above the pre-pandemic levels.
Record-breaking inflation is partly due to a strong labor market. Millions of workers are seeing the largest pay increases in many years. Companies are competing for the same number of workers. May’s earnings increased 5.2% compared to last year. This is more than the 3% pre-pandemic median. However, there are signs that earnings growth might be slowing. Earnings rose 0.3% each month, which was slower than anticipated.
Many businesses report that they pass rising wages on to their customers. President Biden’s approval ratings have dropped as inflation increases, which has been bad news.
Inflation caused the Federal Reserve to increase interest rates at its fastest pace in more than 20 years. They indicated that similar-sized increases could be possible at future meetings, which will take place in June and July.
Due to the strong job growth in May, the Fed is likely not to slow down its rate-hike program. Stocks fell after the report.
Andrew Viteritti, a senior member of the forecasting team at the Economist Intelligence Unit stated that “strong May figures will only encourage Federal Reserve’s course of more aggressive monetary tightening as inflation remains close to a forty-year high.” “
Due to the Fed’s growing hawkish stance, businesses will face new challenges. Higher rates for consumer and business loans can result. This causes an economic slowdown and forces employers and employees to cut back on spending. Fannie Mae and Bank of America forecast an economic recession in the next two years.
Fed Chairman Jerome Powell has acknowledged that there might be some pain in reducing inflation. He has denied the notion of a recession. He identified the strength of the labor market as a bright spot for the economy and highlighted the positive aspects. However, he warned that a soft landing is not possible.
Powell said earlier this month that it would prove difficult and that global events had made it more difficult. He was referring specifically to the conflict in Ukraine, and the COVID lockdowns that were placed on China.