The latest employment report from the Bureau of Labor Statistics has presented a mixed picture of the US labor market, with conflicting signals that have left Federal Reserve officials uncertain about the path forward for interest-rate hikes. In May, nonfarm payrolls witnessed a significant surge, increasing by 339,000, following an upward revision of 294,000 in April. However, this positive news was overshadowed by a rise in the unemployment rate to 3.7% and a slowdown in wage growth.
The jobs report, consisting of two surveys – one of households and the other of businesses (“Establishment Survey”) – provides detailed analysis of the labor market dynamics. The household survey revealed that individuals entering the labor force faced difficulties in finding employment, contributing to the increase in the number of unemployed individuals. In the details, Employment in the household survey contracted 310k (vs. 139k prior), as the labor force increased 130k (vs. -43k prior) and the labor-force participation rate stayed at 62.6%.
On the other hand, the business survey painted a more positive picture, with payrolls surpassing expectations for the 14th consecutive month and wages for non-management workers rising by 0.5%, the highest increase in six months. It is worth noting that the establishment survey, which generates the nonfarm payroll figures, typically has a smaller margin of error in month-to-month changes in employment compared to the household survey.
May’s job gains were broad-based, with notable increases in professional and business services, government, healthcare, and leisure and hospitality. However, some sectors experienced job losses, including manufacturing and information, while financial activities showed slower job creation. Despite the mixed signals in the May employment report, the US economy has not experienced a month of job losses since December 2020. The average job growth for the first five months of 2023 stands at 312,000 positions per month, representing a slight pullback from the previous year. However, these gains remain significantly higher than the pre-pandemic period of 2019.
Federal Reserve Chair Jerome Powell’s cautious approach to pausing interest-rate hikes appears to be validated by the mixed nature of the report. As policymakers convene for their upcoming meeting in June, the employment report serves as one of the last major releases they will consider. Additionally, they will also review the consumer price index for May (that will be released on June 13), further informing their decisions regarding interest-rate hikes and economic policies moving forward.
