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Labor Market Added 390,000 Jobs In May—Beating Expectations Despite Looming Recession Concerns

Topline

The U.S. added back another 390,000 jobs in May, performing better than economists expected as the strong labor market recovery encourages Federal Reserve officials to more aggressively raise interest rates in their fight against inflation—even as experts worry over the potential implications for economic growth.

Key Facts

Job gains in May far surpassed the roughly 328,000 new jobs economists had forecast but fell short of the 436,000 new jobs added in April, according to data released Friday by the Labor Department.

Growth was most pronounced in the leisure, professional services and transportation industries, while employment in retail trade declined, the government said.

Despite the better-than-expected gains, the unemployment rate remained flat at 3.6%—falling short of expectations calling for a return to the prepandemic rate of 3.5% in February 2020, when unemployment was hovering at its lowest level since 1969.

Crucial Quote

“Job growth may slow further in the months ahead, but with nearly two open jobs for every unemployed worker, it would take a significant economic slowdown to keep payrolls from continuing to expand,” Bankrate Chief Financial Analyst Greg McBride said in emailed comments Friday, referring to the roughly 5.5 million more job openings in the U.S. than available workers.

Key Background

After losing more than 20 million jobs at the height of pandemic uncertainty in the spring of 2020, the labor market has quickly and forcefully led the economic recovery. However, prolonged inflation and the threat of rising interest rates, which tend to hurt company earnings, have sparked concerns about the broader economy. Over the past month, corporate giants including Amazon and Walmart have both signaled a slowdown in their hiring needs, with Walmart executives pointing to “overstaffing” as a drag on disappointing profits last quarter. More recently, Tesla CEO Elon Musk reportedly ordered a hiring freeze on Thursday, telling employees he has a “super bad feeling” about the state of the economy.

What To Watch For

Last month, Fed Chair Jerome Powell called the “robust” labor market a bright spot for the economy as he instituted the largest interest-rate hike in 22 years to help cool inflation, which has been rising at the highest rate since December 1981. In a recent note to clients, Bank of America economist Ethan Harris said the key risk to the economy is that inflation remains elevated next year. “Recession risks are low now, but elevated in 2023 as inflation could force the Fed to hike until it hurts,” he said.

Further Reading

Hiring Has Slowed Across All Industries, ADP Reveals In Worst Private Jobs Report Since 2020 (Forbes)

Jobless Claims Keep Rising Unexpectedly—Experts Worry Stock Market Crash Could Have Spillover Effects On Economy (Forbes)

US Added 428,000 Jobs In April—Beating Expectations As Hot Labor Market Spurs Fed Rate Hikes (Forbes)

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