WASHINGTON (AP) — American employers added a whopping 272,000 jobs in May, an acceleration from April and a sign that companies still have enough confidence in the economy to keep hiring despite persistently high interest rates.
Last month’s significant job gains suggest the economy continues to grow steadily, driven by consumer spending on travel, entertainment and other areas of the service sector. For example, U.S. airports reported record numbers over Memorial Day weekend. A robust labor market typically drives consumer spending, the economy’s main engine. Although some recent signs had raised fears of an economic slowdown, the May jobs report should facilitate allay those fears.
Still, Friday’s government report contained some signs of a possible slowdown. The unemployment rate rose for the second month in a row, from 3.9 percent to a still-low 4 percent, ending a 27-month streak of unemployment below 4 percent, the longest such streak since the slow 1960s.
President Joe Biden will likely still point to Friday’s jobs report as a sign of the economy’s strong health under his administration. Presumptive Republican nominee Donald Trump has focused his criticism of Biden’s economic policies on the rise in inflation, which polls show still looms gigantic in voters’ assessments of the economy.
Hourly wages also rose last month, a welcome gain for workers but a trend that could lead to tougher inflation. Hourly wages rose 4.1 percent from a year ago, faster than the rate of inflation and faster than in April. Some companies may raise prices to offset higher labor costs.
Inflation fighters at the Federal Reserve would like to see a slight slowdown in the economy as they consider when to start cutting their benchmark interest rate. The Fed has raised interest rates sharply in 2022 and 2023 after the forceful recovery from the pandemic-induced recession triggered the worst inflation in 40 years.
Annual inflation has fallen to 2.7% by the Fed’s preferred measure, still above the Fed’s 2% target. Lower hiring over time could ponderous wage gains and facilitate contain inflation entirely. Chair Jerome Powell said the Fed needs more confidence that inflation will return to its target on a sustained basis before it can lower borrowing costs.
When the Fed began raising interest rates aggressively, most economists expected the resulting rise in borrowing costs to trigger a recession and drive unemployment to painfully high levels. But the labor market has proven more resilient than almost anyone predicted. Still, Americans in general remain frustrated by high prices, a persistent source of discontent that could threaten Biden’s re-election.
A key reason the economy is still seeing solid net job growth is that layoffs remain at historic lows. Only 1.5 million people lost their jobs in April, the lowest monthly rate recorded in 24 years, aside from the peak of the pandemic. After several years of struggling to fill jobs, most employers are now reluctant to lay off workers.
