Economy added 339,000 new jobs in May despite Fed rate hikes, unemployment at 3.7%
Zachary Halaschak
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The economy again beat expectations in May and added 339,000 jobs, showing that the labor market is still holding up despite the Federal Reserve’s rate hiking.
The headline job growth number in Friday’s employment report from the Bureau of Labor Statistics was far more than predicted, although the unemployment rate rose to 3.7%, still a historically low figure.
Friday’s report is being closely scrutinized as it comes against the backdrop of several major economic developments, including the Fed’s rate hikes, banking sector turmoil, and a weakened housing market.
The employment report’s household survey found that the number of unemployed persons rose by 440,000 to 6.1 million. Amazingly, and despite the Fed’s tightening, the country’s headline unemployment rate has only ranged from 3.4% to 3.7% since March 2022.
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“The data show that job growth is continuing at a rapid pace, but wage pressures are not building,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “While payrolls accelerated for a second month, we think the wage data in particular will give the Fed room to hold policy steady at the upcoming meeting.”
The labor force participation rate held steady from the month before at 62.6% in May, and the employment-population ratio was little changed at 60.3%.
A stronger jobs report shows that rate hikes aren’t harming the labor market as much as expected and could cause the Fed to lean toward another rate hike later this month.
The reading follows several months of strong job gains, which is a bright spot in the economy that President Joe Biden has touted even as inflation keeps chewing into the paychecks of families across the country. Recent employment reports have proven surprisingly resilient, with the unemployment rate declining to multi-decade lows.
The Bureau of Labor Statistic employment numbers for the previous two months were also increased. March was revised up by 52,000 to 217,000, and April was revised up by 41,000 to 294,000.
“With these revisions, employment in March and April combined is 93,000 higher than previously reported,” the release noted.
This latest report though shows that the labor market is continuing to show signs of resilience about halfway through 2023 and lessens some fears that a recession is right around the corner.
The Fed has been hiking rates since March of last year in order to drive down inflation, which has been slowing on an annual basis. Earlier this month, the Bureau of Labor Statistics announced inflation fell slightly to 4.9% in the year ending in April in an update to the consumer price index, the lowest such rate since May 2021.
Meanwhile, the banking sector is still under the microscope following the sudden failure of Silicon Valley Bank back in March. SVB’s downfall acted as a bit of a domino and led to a few other bank collapses as well as some regional banks seeing their stock values plunge.
The federal government was able to step in and stymie the worst of the fallout, although economists are still closely watching the banking system given the overall volatility of the economy amid the Fed’s rate hiking.
While the broader economy is not in a recession, many experts contend that the housing market is. Home prices are falling, a sign of just home much the market has cooled since its red-hot zenith in 2020 when the Fed slashed rates to near-zero and mortgage rates fell in response.
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As of Thursday, the average rate on a 30-year, fixed-rate mortgage was 6.79%, according to Freddie Mac. That number is up from a recent low of just under 6.1% registered in early February and up from about 3.1% at the start of last year. Mortgage rates are now the highest they have been since November.
Despite the flailing housing market, construction jobs have seemingly defied gravity. Friday’s report found that 25,000 new construction jobs were added in May and, over the prior year, construction had added an average of 17,000 jobs per month.