Almost one year ago, the Fed made its final increase of its rate hiking campaign, bringing the target range to 5.25%-5.50%. Since then—as inflation has swelled and the economy has run hotter than anticipated—the Fed has made an effort to engineer a “soft landing”, with each data release acting as potential turbulence.
This morning, the Bureau of Labor Statistics (BLS) released their jobs report for May, and with it, the seat belt sign turned on once again. Economists projected additions of 180,000—a figure in line with April and, more importantly, congruent with recent data releases that contributed to the “soft” part of the “soft landing”. Instead, the economy added 272,000 jobs, the second-highest total this year behind only March’s 310,000 additions. For context, from 2010 to 2019 (what we’re calling the “pre-pandemic” period), seasonally-adjusted average monthly job additions were roughly 180,000. That figure ballooned to 250,000 in 2023 and, outside of this past April’s 160,000 additions, 2024 is charting a similar course to last year.
Almost all industries realized employment growth in May, with private education and health services adding the highest total (at 86,000), followed by government (43,000), and leisure and hospitality (42,000). The only sector to lose jobs in May was mining and logging, which fell by 4,000.
Wage growth also intensified in May, with average weekly earnings rising 0.4% from last month (the largest increase since December-to-January 2024) and up 4.1% on the year (above April’s rise of 4.0%). Similar to inflation, increases in wages have remained sticky, with 35 consecutive months of year-over-year growth at or above 4%.
Although unexpected growth and rising wages generated a jobs report that’s concerning for Wall Street, there were some signs below the surface that point to a cooling economy. To start, the unemployment rate rose to 4.0% in May, a sliver above the expected rate of 3.9% and the first time the rate has been at or above 4% since January 2022 (to put a finer point on it: this marks the end of a historic run of 27 consecutive months of a sub-4% unemployment rate). There was also a slight decrease in the labor participation rate, falling from 62.7% in April to 62.5% in May.
After today’s news, hopes of a September rate cut are quickly fading. While the European Central Bank and Bank of Canada both cut rates this week, the US is dealing with challenges stemming from its remarkable post-pandemic recovery. With the Federal Open Markets Committee meeting next week, accompanied by a release of the most recent Consumer Price Index, there’s hope that turbulence will moderate—and the seat belt sign turns off.
