The US labor market delivered another surprise in May, adding 172,000 jobs while holding the unemployment rate steady at 4.3 percent, according to the Labor Department’s June 5 report. The data paints a picture of an economy that keeps outperforming forecasts, leaving analysts and policymakers scrambling to adjust their outlooks.
Job growth was concentrated in leisure and hospitality, local government, and health care. Average hourly earnings rose 0.3 percent, picking up pace from April. The report crushed Wall Street’s expectations, which had predicted a modest gain of just 85,000 jobs. Stock futures barely budged after the release, suggesting investors are still weighing what this means for monetary policy.
The monthly jobs report is a cornerstone for understanding the US economy, influencing everything from wage forecasts to consumer confidence and Federal Reserve decisions. ConnectOne Bank Founder and CEO Frank Sorrentino, in an email before the report, said it “helps shape the outlook for wages, consumer confidence and the Federal Reserve’s next steps.”
Economists and analysts have struggled to read the economy in recent months. Consumer sentiment sits at historic lows, even as employment remains solid. Inflation has run hotter than expected for much longer than most predicted and has worsened this year amid the Iran War. Yet Americans keep spending.
For households, the key questions revolve around job security, income growth, borrowing costs, and monthly budgets. Sorrentino advised consumers to “stay focused on their own financial picture and remain thoughtful about spending, debt and savings,” despite the broader implications for fiscal and monetary policy.
Data released ahead of Friday’s report hinted at a stabilizing job market. The Labor Department’s Job Openings and Labor Turnover Survey, released June 2, showed job openings climbing to their highest level in nearly two years. In April, professional and business services led the charge with a record gain of 668,000 jobs, according to KPMG senior economist Ken Kim.
Other indicators also pointed to strength. Gusto, which processes payroll for over 500,000 small businesses, reported that those firms added 83,900 net new jobs in May, marking four consecutive months of gains. Payroll processor ADP said 122,000 new private-sector jobs were added in May, though its track record for predicting the official Labor Department numbers has been spotty.
Sorrentino noted that while the labor market has shown some cooling, “from what we see on Main Street, many businesses are still operating, hiring selectively, investing cautiously and adapting to higher costs. That points to an economy that is moderating rather than falling off a cliff.”
With inflation stubbornly high and the economy still growing, traders are increasingly betting on an interest rate hike rather than a cut this year. As of Friday morning, the CME FedWatch tool put a 38.5 percent probability that rates would be higher by year-end, and just a 2 percent chance they would be lower.
KPMG’s Kim wrote on June 2 that “we believe the Federal Reserve will need to raise rates in the autumn.” Many economists expect the central bank to start preparing the market for such a move when it meets next on June 17. The signal will come from the order of risks listed in the Fed’s meeting statement. In recent months, policymakers have emphasized “readings on labor market conditions, inflation pressures and inflation expectations.” If inflation tops the list in June, it may signal a strategic shift.
