The U.S. retail trade sector added 11,600 new jobs in May.
In general, the U.S. labor market remained resilient in May, adding 339,000 jobs, seasonally adjusted. That’s far better than the 200,000 many economists were expecting. The bulk of the job gains occurred in professional services, government, health care, construction and transportation and warehousing. The unemployment rate rose to 3.7 percent from 3.4 percent, with 6.1 million now without a job.
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The jobs data is key for Fed officials looking at whether to pause rate hikes this month. However, the strong labor report could pave the way for another quarter-of-a-point hike.
For the retail trade sector, 11,600 jobs were added in May, up from the 10,000 added in April, seasonally adjusted. Despite the increase, the U.S. Department of Labor Statistics considers the increase “little changed over the month” because of the modest gains. May’s report is still better than when the retail trade sector lost 51,400 jobs a year ago.
The manufacturing sector lost 2,000 jobs in May, versus the 10,000 created in April, seasonally adjusted. “There’s good reason to be bullish on the future of American manufacturing with factory construction booming, but we can’t overlook the current weakness in employment numbers,” Alliance for American Manufacturing president Scott Paul said. “Factory jobs have been stalled this year, partly a product of the Federal Reserve’s interest rate hikes.” Paul said that with the debt ceiling drama in the rearview window, his organization plans to work with Congress to ensure a “strong future for American manufacturing.”
Economists at Wells Fargo said May’s 339,000 increase in nonfarm payrolls was higher than the average monthly gain of 314,000 year-to-date, and well above the average monthly increase of 177,000 over the 2018-2019 period. They said that the May jobs report had “just enough softening” that the Fed could elect to pause on rate hikes. That softening comes from a slightly higher unemployment rate, alongside modest slowing in wage growth. The May jobs report also indicated that average hourly earnings for non-farm workers rose by 11 cents, or 0.3 percent, to $33.44. In comparison, the average hourly earnings have risen by 4.3 percent over the past 12 months. But because of the relative strength of the jobs data, alongside high inflation, the economists said they also wouldn’t be surprised if there was another hike later this month.
The Conference Board’s senior economist Selcuk Eren said the strong U.S. labor market continues to defy expectations. He said the upward revision of April’s data to 294,000 total jobs added was another sign of the labor market’s ongoing strength. And while the pace of wage growth continues to moderate, it remains above pre-pandemic rates, he said.
“The persistence of strong job gains and elevated wage growth, coupled with the prevailing inflationary pressures, leads us to anticipate that the Federal Reserve will take further measures to tighten monetary policy,” Eren said, predicting a quarter-of-a-point hike.
And despite the gains in transportation and warehousing, which added 24,000 jobs in May, Eren said that’s one of the sectors where he’s anticipating that layoffs could become “more prevalent” going forward. He’s anticipating a “short and shallow recession” to take hold in late 2023 as Fed policy rate increases begin to cool down inflation. Eren also expects the unemployment rate will rise to 4 percent before January and to 4.4 percent by the second quarter of 2024.
On Wednesday, private payroll firm ADP said private employers added 278,000 jobs in May, but also noted that pay growth continued to decline.
“This is the second month we’ve seen a full percentage point decline in pay growth for job changers,” ADP chief economist Nela Richardson said. “Pay growth is slowing substantially, and wage-driven inflation may be less of a concern for the economy despite robust hiring.”
There was talk in early May at the Fed’s last rate hike that after 10 straight increases, it could be time for a breather, particularly since there was a bit of credit tightening following deposit runs in March after the collapse of Silicon Valley Bank and Signature Bank. Federal Reserve chairman Jerome Powell said at the time that “additional policy firming may be appropriate,” depending on what the next data indicates.
May’s Consumer Confidence Index report on Tuesday from The Conference Board fell to 102.3 from April’s upwardly revised 103.7. Most of that decline came from respondents’ deteriorating assessment of current employment conditions. Consumers need to feel good about their job prospects in order for them to spend on discretionary purchases such as apparel, accessories and footwear.