US job gains slowed to a 13-month low of 328k in May

Rising US interest rates and the prospect of slower economic growth in the coming months suggest hiring is also likely to ease – and that’s what Wall Street expects in May.

This can be seen in the labor market report on Friday morning:

Wall Street forecast

The number of new jobs created in the US in May is likely to slow to a 13-month low of 328,000, according to a Wall Street Journal poll of economists.

For comparison, the economy added at least 400,000 jobs per month last year and added an average of 518,000 per month in 2022.

However, there are signs of a slower adjustment. Some big companies have imposed hiring freezes, a Federal Reserve survey has found. And an ADP jobs report showed the smallest job creation in May since the pandemic began.

“We expect job growth to continue to trend upwards,” said chief economist Rubeela Farooqi of High Freqeuncy Economics, “but the pace is right
likely to slow as the Fed continues to hike rates in the coming months.”

However, the bigger problem could still be a major labor shortage. Many companies looking to hire still say they can’t find enough skilled workers.

The May report could also bring a statistical quirk.

It’s usually the second-biggest month for hiring of the year, but if sheer growth falls short of government expectations, seasonal adjustments make May’s jobs numbers look much worse.

Jobs by industry

Hiring in interest-rate-sensitive industries like housing and finance is likely to slow, especially after strong gains earlier in the year. There is less demand for builders and real estate agents as home sales slow.

The same is true for retailers and shippers as consumers limit the buying of goods in the face of high inflation.

However, employment in tourism and travel could rise as the summer vacation season approaches and Americans shift more spending to services and away from goods.

unemployment rate

Wall Street DJIA,
expects the US unemployment rate to fall to 3.5% from 3.6% and hit pre-pandemic lows in 2020. Before that, the unemployment rate was last this low in 1968.

How “tight” is the labor market? If the unemployment rate falls below 3.4%, it would be the lowest rate since 1953.

Growing workforce

The labor force is growing again, but has not returned to pre-pandemic levels.

High inflation and a flagging stock market could encourage more people to look for jobs, economists say, but probably not enough to ease the worst labor shortage in decades.

The working-age population as a percentage of the labor force stood at 62.2% in April, more than a full point below the pre-Covid peak. That equates to about 1.5 million missing workers.

pay workers

Labor shortages helped push average wages up 5.5% to $31.85 an hour last year, the biggest increase since the early 1980s.

Economists are forecasting another sizeable 0.4% rise in wages in May, but there are signs that wage growth is beginning to ease. A slower economy and mindset would almost assure this.

But even the big wage increase is not enough to keep up with inflation. The cost of living has increased by 8.3% in the past year US job gains slowed to a 13-month low of 328k in May

Brian Lowry

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