WASHINGTON (AP) — U.S. employers added a whopping 390,000 jobs in May, continuing a string of solid hiring that has sustained an economy squeezed by high inflation and interest rates.
Last month’s gain reflected a still healthy job market, despite fears the economy will weaken in the coming months as the Federal Reserve steadily hikes interest rates to fight inflation. The unemployment rate was unchanged at a low 3.6%, The Ministry of Labor announced on Friday.
Businesses in many industries remain desperate for employees as their customers continue to spend lavishly despite growing concerns about high inflation. Americans’ finances have been bolstered by rising wages and an unusually large mountain of savings amassed during the pandemic, particularly by higher-income households.
Workers generally enjoy near-unprecedented bargaining power. The number of people quitting their jobs, typically for better jobs at higher wages, has been at or near a record high for the past six months.
The strength of the labor market is itself contributing to inflationary pressures. As wages rise across the economy, firms are passing at least some of their increased labor costs on to their customers in the form of higher prices. The cost of groceries, gas, rent and other items – which are disproportionately hitting low-income households – are rising at almost the fastest pace in 40 years.
Inflation had started to rise last year as rising demand for cars, furniture, electronics and other physical goods collided with stretched supply chains and parts shortages. More recently, the prices of services like airline tickets, hotel rooms, and restaurant meals have skyrocketed as Americans shift more of their spending to these areas.
The Fed’s rapid rate hikes, which are on course to be the fastest in more than 30 years, could eventually weaken the economy. In a bid to cut spending and slow inflation, the central bank raised its short-term interest rate by half a point last month, the largest hike since 2000, to a range of 0.75% to 1%.
Two more half-point rate hikes are expected this month and in July. And some Fed officials have hinted in recent speeches that they could make another half-point hike in September if inflation shows no signs of slowing.
The Fed’s moves have already raised mortgage rates sharply and contributed to a decline in new and existing home sales. The rate hikes have also raised borrowing costs for companies, which could respond by reducing investment in new buildings and equipment, thereby slowing growth.
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