In May, American employers added a solid 272,000 jobs, an increase from April, indicating that companies remain confident in the economy despite ongoing high interest rates.
This significant job growth last month reflects the resilience of America’s consumer-driven economy. With households maintaining steady spending, many employers continue hiring to meet customer demand.
The unemployment rate edged up to 4% from 3.9%, marking an end to 27 months of unemployment below 4%, the Labor Department reported on Friday. This period had matched the longest such streak since the late 1960s.
President Joe Biden is likely to highlight Friday’s jobs report as evidence of the economy’s strong performance under his administration. Meanwhile, the presumptive Republican nominee, Donald Trump, has criticized Biden’s economic policies, particularly focusing on the surge in inflation, which remains a significant concern for voters, according to polls.
The substantial job gain in May suggests that the economy should continue expanding at a steady rate. A healthy job market typically drives consumer spending, the primary fuel of the economy. Despite some recent signs of economic weakness raising concerns about faltering growth, May’s jobs report could help alleviate those worries.
However, the Federal Reserve’s inflation fighters would like to see the economy cool somewhat as they consider when to start cutting their benchmark rate. The Fed significantly raised interest rates in 2022 and 2023 following the vigorous recovery from the pandemic recession, which triggered the worst inflation in 40 years.
1.5 million people lost jobs in April
Annual inflation has decreased to 2.7% by the Fed’s preferred measure, still above the Fed’s 2% target. Gradual cooling of hiring could slow wage growth and help fully control inflation. Chair Jerome Powell has stated that the Fed needs greater confidence that inflation is returning sustainably to its target before reducing borrowing costs.
When the Fed began raising rates aggressively, most economists anticipated that the resulting increase in borrowing costs would cause a recession and significantly raise unemployment. However, the job market has proved more resilient than almost anyone had predicted. Nonetheless, Americans remain generally frustrated by high prices, a persistent issue that could threaten Biden’s re-election campaign.
One key reason for the continued solid net job growth is that layoffs remain at historic lows. Only 1.5 million people lost jobs in April, the lowest monthly figure on record outside of the peak pandemic period, in data spanning 24 years. After years of struggling to fill jobs, most employers are reluctant to lay off workers.