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U.S. Added 390,000 Jobs in May

The Wall Street Journal. logo The Wall Street Journal. 6/3/2022 David Harrison
© Rich Pedroncelli/Associated Press

The U.S. economy added jobs at a solid pace in May, extending the labor market’s long stretch of gains.

Employers added 390,000 jobs last month, the Labor Department said Friday. The unemployment rate held at 3.6%, slightly above where it stood in February 2020, when the Covid-19 pandemic became widespread in the U.S.

U.S. stocks opened lower after release of the figures, with all three major indexes dropping. The yield on the benchmark 10-year Treasury note rose.

Beneath the surface, however, the jobs report offered hints that the labor market is starting to cool.

May’s job gains represented the slowest pace of growth since April of last year, a 12-month period in which employers added more than half a million jobs a month on average.

Wages grew 5.2% in May from a year ago, the department said, down from 5.5% in April. That was a sign that a severe shortage of labor might be starting to ease as plentiful jobs and fat paychecks draw more people back to the workforce.

The labor market is still “boiling,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “It’s just not boiling as vigorously as it was.”

A slower pace of wage gains could help slow overall inflation, which has accelerated at four-decade highs in recent months. Federal Reserve officials have said they are closely monitoring the pace of wage increases as they attempt to bring down inflation.

Roughly 330,000 people joined the workforce in May and the labor-force participation rate, which measures the share of people working or looking for work, ticked up to 62.3% from 62.2% in April.

Payrolls grew the most in leisure and hospitality in May, reflecting a shift in consumer demand from goods to services as pandemic restrictions fade. Professional and business services, and transportation and warehousing businesses also posted solid gains.

Broadly, employment at technology firms rose in May, despite Netflix Inc. and other tech companies recently announcing that they were freezing hiring or letting workers go. The tech-heavy information sector added 16,000 jobs, or a 0.5% gain—slightly faster than overall employment growth. Still, the pace of hiring in tech jobs has cooled. The information sector employment grew 5.9% in May, from a year earlier, versus a 7.6% growth in the prior 12 months.

Overall private sector employment rose 5.1% in the past year.

April’s job gains were revised up to 436,000 from 428,000, while the gains in March were revised down to 398,000 from 428,000, the department said.

The job market is going through an exceptionally strong stretch in which demand vastly exceeds the supply of available workers.

Competition for workers amid a severe labor shortage has driven up annual wage increases above 5% every month of this year, putting pressure on inflation. By contrast, wage gains averaged 3.2% in the 12 months to February 2020.

But there are early signs that the labor market is moving toward a new equilibrium.

Wages grew 0.3% in May from the previous month, matching April’s gains. That is a slower pace than last year’s average, suggesting that the fierce competition for workers is starting to cool.

Roughly two million people aged between 25 and 54 have returned to the labor force since September of last year, which has made it easier for employers to fill open positions and allowed them ease up on pay raises.

Extended unemployment benefits expired for much of the country in September, which, combined with the reopening of schools and daycare centers, could account for the people’s willingness to return to work, said Mr. Shepherdson.

“We’re still seeing improvements in the labor market. We’re still putting people who were unemployed over the pandemic back to work. But it’s more sustainable over the long run,” said Augustine Faucher, chief economist at the PNC Financial Services Group.

Matthew Johnson, founder and chief executive of Midwestern Interactive, a tech company in Joplin, Mo., said he had boosted pay packages by 30% to 40% over the past two years to recruit talent.

Now, though, the industry has hit a slowdown, and Mr. Johnson expects that should help moderate wage growth.

“I do believe we’re going to see things start to plateau within the next 12 to 18 months,” he said.

Federal Reserve officials will likely welcome a slowdown as they attempt to wrestle inflation down. Officials are betting that the labor market is strong enough that higher interest rates won’t cause a damaging wave of layoffs.

Fed Chairman Jerome Powell said in a May 17 interview with The Wall Street Journal that he was confident the Fed could pull it off.

“There are pathways for us to be able to moderate demand, get demand and supply back in alignment, and get inflation back down while also having a strong labor market,” he said. “You’d still have quite a strong labor market if unemployment were to move up a few ticks.”

The Fed is pursuing an aggressive path of interest-rate increases to curb inflation that could contribute to a slower pace of labor market growth.

Fed officials have moved up their benchmark rate by three-quarters of a percentage point over two meetings this year and have penciled in another percentage-point increase over the next two meetings.

That has pushed up borrowing costs, particularly in the housing sector, where the average 30-year mortgage rate is now above 5%, up from around 3% a year ago, according to housing lender Freddie Mac.

Home sales have fallen in response. Existing-home sales were down 5.9% in April from the previous year, according to the National Association of Realtors.

Inflation could also curb job growth in the coming months as consumers pull back on spending. A measure of consumer sentiment published by the University of Michigan fell in May to its lowest level in more than a decade on inflation concerns.

For now, economists say there are few signs that a slowing labor market will lead to a recession soon. Consumer expenditures, which represent about two-thirds of the U.S. economy, grew at a seasonally adjusted annual rate of 0.9% in April, a sign that households are still willing to spend thanks to higher wages and pent-up savings accumulated earlier in the pandemic.

“I think there’s a 100% or a 99% chance of a slowdown, but a recession is not necessarily in the cards,” said Greg Daco, chief economist at EY-Parthenon, a consulting firm. “We don’t have the usual signals of an impending recession.”

Write to David Harrison at david.harrison@wsj.com

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