By guest author David Harrison from the Wall Street Journal, Harriet Torry and Ken Thomas contributed to this article.
U.S. job growth cooled slightly in May, adding to signs the economy is starting to lose some steam after its rapid recovery last year.
Employers added 390,000 jobs last month, a robust increase but down from a gain of 436,000 in April and below the monthly average pace of growth last year, the Labor Department reported Friday, June 3, 2022.
The unemployment rate held at 3.6 % in May, close to the half-century low level it reached in 2020 before the Covid-19 pandemic sent the economy into a deep but short recession. About 330000 people joined the labor force, but the participation rate remained below prepandemic levels.
The report follows other indications that the economy remains strong, but its momentum is slipping in some sectors.
Annual wage gains slowed in May. Existing-home sales were down 5.9 % in April from the previous year, according to the National Association of Realtors. Consumer spending in April grew at its slowest pace this year. And a measure of output in the service sector rose more slowly in May than in April, the Institute for Supply Management said on Friday.
U.S. stocks dropped on Friday, June 3, 2022 and closed out the week with losses. The yield on the benchmark 10-year Treasury note ticked up.
May’s job gains represented the slowest pace of growth since April of last year, a 12-month period in which demand vastly exceeded the available supply of workers. Employers filled more than half a million jobs a month on average during that stretch while complaining about a labour shortage.
Wages grew 5.2% in May from a year ago, the department said, down from 5.5 % in April. That was a sign that the labour shortage might be starting to ease as more people return to the workforce.
The labour market is still “boiling,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “It’s just not boiling as vigorously as it was.”
Friday’s jobs report presents a labor market undergoing a period of transition as pandemic-related disruptions fade. That has sent different sectors in the economy moving in different directions.
Retailers shed almost 61,000 jobs in May, the Labor Department said, while leisure and hospitality employers added 84000. Consumers, who loaded up on goods such as televisions and furniture early in the pandemic, have started to shift their spending to in-person services such as travel or restaurant meals.
A slowing economy could ease the pressure on inflation, which will come as welcome news to the Federal Reserve. Officials have embarked on an aggressive pace of rate increases in an attempt to tamp down on prices, which have been rising faster than any point in four decades.
The trick will be to cool the economy enough to bring inflation down without tipping into a recession.
Fed Chairman Jerome Powell said in a May 17 interview with The Wall Street Journal that he was confident the Fed could pull it off. “There are pathways for us to be able to moderate demand, get demand and supply back in alignment, and get inflation back down while also having a strong labor market,” he said. “You’d still have quite a strong labor market if unemployment were to move up a few ticks.”
Fed officials will be particularly encouraged by signs of slowing wage growth, said Augustine Faucher, chief economist at the PNC Financial Services Group.
“That suggests perhaps some of the inflationary pressures coming from the labour market are easing,” he said. “Certainly that is good news from the Fed’s perspective.”
Matthew Johnson, founder and chief executive of Midwestern Interactive, a tech company in Joplin, Mo., said he expects to ease up on raises in the coming months as growth slows in the tech sector.
Over the past two years he has had to boost pay packages by 30% to 40% to compete for talent, he said.
“I do believe we’re going to see things start to plateau within the next 12 to 18 months,” he said.
Big employers, such as Twitter Inc. or Netflix Inc., have announced hiring freezes or staff cuts as the industry retrenches. On Thursday, Tesla Inc. Chief Executive Elon Musk told his staff he planned to cut 10% of salaried jobs.
President Biden, speaking from Rehoboth Beach, Del., said the job report offered signs of stable and steady growth in the economy and said Americans shouldn’t expect to see blockbuster monthly job increases in the months ahead. “That’s a good thing—that’s a sign of a healthy economy,” Mr. Biden said.
Whether the labor market reaches a more sustainable equilibrium will largely depend on how many people return to work. A bigger supply of available workers should help meet employers’ demand for labor while keeping wage pressures in check, economists say.
The pandemic sparked a wave of early retirements and resignations as people voluntarily took themselves out of the labor force.
Now, the allure of plentiful jobs and fat paychecks is starting to draw people back. Roughly two million people aged 25 to 54 have joined the labor force since September of last year, making it easier for employers to fill open positions and allowing them to ease up on pay raises.
Extended unemployment benefits expired for much of the country in September, which, combined with the reopening of schools and daycare centers, could account for the people’s willingness to return to work, Mr. Shepherdson said.
The labor-force participation rate, which measures the share of workers working or looking for work, ticked up to 62.3% in May from 62.2% in April but still down from 63.4% in February 2020.
“In order to see encouraging progress and sustainable labor market progress we need to see a stronger rebound of labor supply,” said Greg Daco, chief economist for EY-Parthenon, a consulting firm.
One of those people returning to work is Danilda Encarnacion, who was furloughed from her Boston-area secretarial job early in the pandemic. After more than a year living on savings and unemployment benefits, she got called back last summer but had to quit because her son’s school only offered virtual classes, forcing her to stay home.
In March, she started a culinary training program run by the Salvation Army. She has a job interview with a bakery on Tuesday.
“I had been doing admin work for so long I never thought to change paths so I’m 100% confident and I’m excited to see what this has to offer,” she said.