A bumper May jobs report (339,000 net jobs added) shows that any recession is still a ways off. Hiring has continued at a fairly strong pace this year, despite expectations of a slowing economy. Perhaps this is partly the result of businesses making up for past staff shortages, or their reluctance to lay off staff in light of those recent shortages. This is putting money in consumers’ pockets and keeping the economy afloat by maintaining consumer spending levels.
Most sectors of the economy are still hiring briskly. The services sector is still going strong, accounting for three-quarters of the May increase. Still flush with pandemic funds, state and local governments added 49,000 jobs. Retail and delivery services are seeing a bounce, up 20,000 positions. The motor vehicles industry added 13,000 between manufacturers and dealers. Nonresidential construction accounted for almost all of the 25,000 new construction workers.
But there are worrisome hints of a future slowdown. Outside of motor vehicles, manufacturers are laying off more workers than they are hiring, indicating that production of goods is expected to decline in the future because of declining order backlogs. The unemployment rate jumped from 3.4% to 3.7%, indicating that some layoffs are occurring.
The strong labor demand is keeping wage growth strong, as well. Wages rose 4.3% in May from a year ago. We expect that the yearly rate will slow to around 3.5% before the end of 2023. However, wage growth for production workers has been running higher, illustrating the various labor shortages at the lower end of the pay scale. Their wage gains slowed to a still-lofty 5.0% over the past year. We expect this annual pace to dip to 4.4% before year-end.
This strong jobs report makes it less likely that the Federal Reserve will pause interest rate hikes in its fight against inflation, but we still think that they will take a pass at their next meeting on June 14. The Fed is concerned about rate hikes causing stress in the banking system. But the May jobs report makes it more likely that the Fed will not actually cut rates until a recession is more imminent.
David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.
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