JUNE 5, 2023 – OVER 300,000 NEW JOBS CREATED IN MAY
The US labor market added 339,000 jobs in May. Despite fears of a recession, the labor market is defying expectations for the second month in a row. The unemployment rate rose to 3.7 percent from 3.4 percent in April, the highest since October 2022 but still near historic lows. Hourly wages grew 4.3 percent year-over-year, similar to the gains seen in March and April. The data puts the Fed in a quandary, should rates hold firm or should they raise rates again at their meeting next week.
The Fed was hoping its 10 consecutive rate increases, aimed to slow inflation, would have caused the economy to slow, putting the brakes on wages increases. The underlying good news from this report was the average workweek has decreased since the start of the pandemic, which means average weekly earnings are up less than hourly, and the gains have slowed since the start of the year.
The Fed signaled on Wednesday, before the jobs report was released, they are not likely to change rates at their June 13-14 meeting. They want more time to reflect upon the economic effects of all their rate hikes, as well as the recent issues in the banking industry. In March the Fed said they’d need to raise rates to at least 5.5 percent to tame inflation, but that was before the bank crisis.
Fed officials will release projections at their June meeting, a compromise amongst members would allow them to skip the June hike, instead delaying it to July. Another increase would bring the Federal Funds rate to a 22-year high.