US employers added 390,000 jobs in May, sparking a series of solid hiring spree that bolstered an economy under pressure from high inflation and rising interest rates.
Last month’s gains reflect a resilient job market that has so far allayed concerns that the economy will weaken in the coming months as the Federal Reserve continues to raise interest rates to fight inflation. The Labor Department said Friday that the unemployment rate stood at 3.6%, just above a half-century low.
Job growth in May, though healthy, was the lowest monthly gain in a year. But it was high enough to keep the Fed on track in what is likely to be the fastest series of rate hikes in more than 30 years. Stock market indexes fell on Friday after the government released a jobs report, reflecting that concern.
Businesses in many industries are desperate to make rent because their customers continue to spend freely despite intensifying concerns about high inflation. Americans’ finances have grown into an unusually large pile of salaries and savings that were accumulated during the pandemic, especially by high-income families.
“Given all the things we’ve heard about the recession and economic headwinds, it was very reassuring to see a solid jobs number,” said Mark Wittner, senior economist at Wells Fargo.
One encouraging sign, Wittner said, was that hiring was widespread across much of the economy.
“When the economy loses momentum,” he said, recruitment happens in only a few sectors, “and today we are not seeing that.”
Almost every major industry added workers in May. The one major exception was retail, which lost around 61,000 positions. Some large retailers, including Walmart and Target, have reported disappointing sales and earnings. Last month, Walmart said it had over-hired and then reduced its head count through attrition.
Construction companies added 36,000 jobs, a hopeful sign for Americans who have bought new homes that have not yet been built because of a lack of labor and parts. Shipping and warehousing companies, which are still struggling with rising online commerce, added 47,000 jobs. Restaurants, hotels and entertainment venues hired 84,000.
Last month, Friday’s report showed, more Americans came out of the workforce and found jobs, a sign that rising wages and plentiful opportunities are encouraging people to seek work. Still, the proportion of people who either have a job or are looking for one is below pre-pandemic levels.
Rising prices may also have prompted some people to take jobs: the number of people age 55 or older who have been working in the past month, suggesting that some older Americans leave their jobs as “compulsory”. Are – or are being discontinued – during the pandemic and its consequences
The median hourly wage rose 10 cents to $31.95 in May, the government said, a tangible gain but not enough to keep up with inflation. Compared to 12 months ago, hourly wages climbed 5.2%, down from 5.5% year-over-year gains and a second straight decline in April.
Still, more moderate wage growth can ease inflationary pressures in the economy and help sustain growth.
Workers, in general, are enjoying almost unprecedented bargaining power. Generally, the number of people leaving jobs for better positions at higher salaries has been at or near a record high of six months. Layoffs are at their lowest level on record 20 years ago.
Yet there are signs that some companies, facing rising parts and labor costs, are beginning to resist demands for higher wages.
One such executive is Jackie Bondanza, CEO of Hounds Town, a chain of doggy daycare with 30 locations in 14 states. Bondanza said people applying for jobs at the company’s headquarters in Garden City, NY, who don’t have the necessary experience, are still asking for a salary above the listed salary.
“People are coming in demanding 30% more,” she said. “We can’t pay anyone more for that.”
Still, Bondanza plans on hiring to support the company’s expansion. Hounds Town, which expects to open 50 new franchise outlets over the next 18 months, is seeking to fill three jobs, including a training director and a marketing director. The company’s corporate office now has 17 employees, up from five a year ago.
That said, inflation has not yet discouraged most customers from seeking the company’s services, which include daily care and boarding of dogs.
“We are seeing more dogs in our facilities than some of our stores know what to do with,” Bondanza said.
Tom Gimbel, chief executive of LaSalle Networks, a staffing firm in Chicago, said his client companies are still eager to hire new employees and offer solid salaries. But as a result they are also selective about job applicants.
After the pandemic made it clear to companies that they would have to pay more, he said, his firm is now beginning to warn job seekers that it may not secure the huge growth they want. Given the high cost, many companies are grappling with it.
“Now we’re moving to a more normal, healthy place,” Gimbel said.
Also, the strength of the country’s job market is contributing to inflationary pressures. With increased wages across the economy, companies are passing at least some of their increased labor costs to their customers in the form of higher prices. The costs of food, gas, rent and other items – which fall disproportionately on low-income households – are rising at almost the fastest pace in 40 years.
Inflation began to rise last year as demand for cars, furniture, electronic components and other physical goods hit supply chains and parts shortages. Recently, the prices of services such as airline tickets, hotel rooms and restaurant meals have skyrocketed as Americans move more of their spending to those areas.
To try to slash spending and slow inflation, the Fed raised its short-term rate by half a point last month, its biggest increase since 2000, to a range of 0.75% to 1%. Two additional half-point increases are expected this month and in July. And some Fed officials have suggested in recent speeches that if inflation doesn’t show signs of slowing, they could implement another half-point hike in September.
The Fed’s moves have already raised mortgage rates sharply and contributed to a drop in new and existing home sales. Rate hikes have also raised borrowing costs for businesses, which may react by reducing their investments in new buildings and equipment, slowing growth in the process.