The United States witnessed a stronger-than-anticipated surge in job numbers during May, a development that might enable the Federal Reserve to forego its first interest rate rise this month, breaking a pattern of vigorous policy tightening that commenced over a year ago.
The Department of Labor's much-anticipated employment report, released on Friday, revealed a 339,000 job increase in nonfarm payrolls for the past month. Meanwhile, revised data for April shows an upswing of 294,000 jobs, up from the previously reported 253,000.
The boost surpassed the projections made by Reuters' economists, who had estimated a payroll swell of 190,000.
Even with robust recruitment numbers, the unemployment rate experienced a slight hike to 3.7% in May, up from April's 53-year low of 3.4%.
Simultaneously, wage growth appears to be softening, a trend likely to provide some respite for Fed officials grappling with the task of returning inflation rates to the U.S. central bank's target of 2%. Average hourly earnings inched up by 0.3%, following a 0.4% increase in April. Consequently, annual wage growth fell to 4.3% from the 4.4% figure of the previous month. This marks a notable shift from the pre-pandemic average of 2.8% annual wage growth.
Friday's report paints an optimistic picture of a robust labor market, reinforcing indications that the U.S. economy remains a considerable distance from the feared specter of a recession. However, it also highlights an increasing number of weaknesses.
Despite widespread layoffs in the tech sector following over-recruitment during the pandemic, and the detrimental impact of higher borrowing costs on the housing and manufacturing sectors, the services sector is still rebounding. This includes areas like leisure and hospitality, which have been grappling with labor shortages over the last couple of years. A higher retirement rate in industries such as healthcare and education has also been observed.
Refilling these vacated roles and an escalating demand for services are among the factors fueling job growth. The Labor Department underscored the latent demand for labor by revealing 10.1 million job openings at April's end, equating to 1.8 vacancies per unemployed individual.
A majority of economists predict sustained payroll growth at least until the year's end.
Early market indicators on Friday suggested over a 70% probability of the Fed maintaining its current policy rate at the forthcoming June 13-14 meeting, as per the CME Group's FedWatch Tool. Since March 2022, the Fed has implemented a 500-basis point increase in its benchmark overnight interest rate.