US job growth exceeded expectations in May, with 272,000 jobs added, while the unemployment rate rose slightly to 4%, breaking a 27-month streak of below-4% unemployment. Economists were surprised by the strength of the job growth, which was well above expectations. The Federal Reserve, which has been considering interest rate cuts, may find it difficult to justify a cut based on the strong job market data.
The latest jobs report showed stronger-than-expected wage gains, with average hourly earnings increasing by 4.1% over the past year. The service sector saw the most significant wage increases, contributing to concerns about inflation. This may create challenges for the Fed in deciding whether to raise rates to combat inflation. Traders are now predicting the first rate cut will not happen until December, according to the CME FedWatch Tool.
The surge in job gains and rising unemployment rate present a mixed picture for the economy. The strong job market has supported consumer spending but has not necessarily helped in the fight against inflation. While the establishment survey showed strong payroll gains, the household survey indicated a decrease in employment, leading to confusion among economists about the state of the economy.
The divergence between the household and establishment surveys may be due to the impact of post-pandemic immigration, which is not fully captured in the data. Economists believe that increased immigration has boosted the supply of workers and productivity, contributing to stronger job growth without inflationary pressures. The current job market remains historically strong, with record-breaking levels of job creation and a healthy labor market for Americans.
Despite some concerns about inflation, the job market continues to show strength, with an average of 247,800 jobs added per month in 2018. Service-providing industries led the way in job gains in May, with health care and social assistance industries adding the most jobs. Interest rate-sensitive sectors like construction and manufacturing also saw job growth. The labor market remains strong, with prime-age employment rising and the labor force participation rate for prime working-age women reaching an all-time high.
