May Jobs Report Beats Expectations

The unemployment rate held steady at 3.6%.

It’s that time of the month—jobs report Friday. Today the U.S. government released employment data for the month of May, and it was a bit better than expected. Nonfarm payrolls expanded by 390,000 in the month, more than the 318,000 that economists were expecting. 

The unemployment rate remained unchanged, at 3.6%, matching the lowest level of the postpandemic-recovery period and just a hair above the prepandemic low of 3.5%. Other than just before the pandemic began, an unemployment rate this low hasn’t been seen since the late 1960s. 

Other details of the jobs report showed that average hourly earnings grew by 5.2% year over year in May, as expected, but down from 5.5% in April.  

The labor force participation rate ticked up from 62.2% to 62.3% as more people got pulled into the job market, attracted by higher wages. Still, the rate remained slightly below its prepandemic level of 63.4% and well below its all-time high of 67.3% set during the peak of the dot-com bubble. 

Typically the most scrutinized data on the economy, this year, the nonfarm payrolls report has taken a back seat to data on inflation, like the Consumer Price Index. The Federal Reserve has made it clear that bringing inflation down is its No. 1 priority, even if it comes at the expense of the red-hot jobs market.  

Priorities Shift 

The Fed has a dual mandate from Congress—maximum employment and price stability. With unemployment at the lowest level in close to five decades, and inflation running at its highest level in four decades, the balance of priorities has clearly shifted toward bringing about price stability. 

In comments made in May, Fed Chair Powell said that the labor market would still be strong, even if the unemployment rate were to “move up a few ticks,” suggesting that he and his colleagues would be OK with the job market cooling off a bit if it helped with bringing inflation down. 

Today’s jobs data likely does little to change the Fed’s priorities or its resolve to hike interest rates aggressively to combat inflation. 

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