The monthly jobs report from the Labor Department’s Bureau of Labor Statistics is full of surprises and conflicting signals about the future.
“There is a possibility that the Federal Reserve may not lower the interest rate for the entire year,” stated economist Dr. Kishore Kulkarni with MSU Denver, “even though they have indicated otherwise.”
In May, the economy added significantly more jobs than anticipated, with nonfarm payrolls increasing by 272,000, up from 165,000 in April.
Additionally, wage growth improved, rising 0.4% for the month. Average hourly earnings have increased by 4.1% over the past year, surpassing the recent inflation rate.
However, the national unemployment rate rose back to 4% for the first time since January 2022.
“Job growth is mainly concentrated in the service sector, hospital-related health services, leisure, transportation, and hospitality,” Kulkarni explained. “These sectors are experiencing significant job creation.”
Mark Hamrick, senior economic analyst at Bankrate, referred to the prolonged period of unemployment below 4% as a “historic anomaly.” He highlighted that certain sectors, such as business, professional services, technology, and interest rate sensitive sectors like housing, are facing challenges due to recent rate hikes.
Hamrick pointed out that the imbalance between supply and demand for workers continues to drive job openings and wages up, contrary to what the Federal Reserve needs to relax its interest rate policy.
“Prices are still high,” Hamrick emphasized, “However, the positive news is that wage growth is outpacing inflation rates, a trend expected to continue in the near future.”
The Fed will present an economic projection following the upcoming Federal Open Market Committee meeting on June 11-12. The likelihood and timing of any interest rate cuts remain uncertain.
“There is a roughly even chance of a rate cut in September,” predicted Hamrick.