June 3, 2022, 7:16 a.m. ET
June 3, 2022, 7:16 a.m. ET
U.S. Hiring Likely Continued at a Solid Pace in May
New data comes at a time of rising consumer prices and wages while the Federal Reserve works to cool the economy.
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Forecasters expect job gains to slow yet remain solid.
While there are still far more job openings than job seekers, the gap has narrowed.Credit...Houston Cofield for The New York Times
The government will release its May jobs report on Friday morning, and forecasters expect it to reflect gains that are solid but shy of the breakneck pace of recent months.
The labor market continues to be driven forward by resilient consumer demand and the easing of the economic disruptions of the coronavirus.
According to economists surveyed by Bloomberg, the report will show that 323,000 people were added to payrolls last month. Unemployment is expected to notch down from 3.6 percent to 3.5 percent, which would match the prepandemic rate, a half-century low.
The closely watched data is being released against a backdrop of mixed economic signals. Checking accounts for most households are still elevated compared with the start of the pandemic. Retail sales and industrial production climbed in April. Still, although wages are up and joblessness is low, inflation remains uncomfortably high for tens of millions of households whose income gains have been eroded by higher prices.
In a bid to cool off inflation, the Federal Reserve is raising interest rates to increase the cost of borrowing, which could hold back some business investments and decrease wage growth.
In addition, the stimulus created by federal support measures during the pandemic is diminishing. That should slow overall demand, yet it may give households less of a cushion to deal with higher prices.
The financial volatility that Americans have experienced this year stems, at least in part, from global events. War in Ukraine is pushing up commodity prices, making gasoline and groceries more expensive. At the same time, coronavirus outbreaks in Asia curtailed production at key manufacturers and suppliers.
There is some early evidence that the Fed’s ambitious plan for engineering a modest economic slowdown that avoids a painful recession may be having an impact. Wage growth, which many worry could prevent inflation from moderating, is expected to ease in the May report. And data released by the Labor Department on Wednesday showed that although there were still far more job openings than job seekers , that gap had narrowed.
“Businesses with high profitability, easy access to capital, the capacity to automate and pricing power are still eager to hire,” said Bill Adams, chief economist at Comerica Bank, a large commercial bank based in Texas. “But businesses that are seeing their margins squeezed by rising costs, like hospitality, or that are seeing demand soften, like retail, are pulling job postings as their outlook softens. And competition for workers is squeezing lower-paying employers out of the job market.”
The key numbers to watch and how to interpret them.
A co-working space in San Francisco. Employers have responded to hot competition in the job market by raising pay.Credit...Jim Wilson/The New York Times
In normal times, a slowdown in job growth is a troubling sign, prompting fears that the economy is losing steam or, worse, headed into a recession.
But these are not normal times. With nearly twice as many open jobs as available workers and inflation running at its fastest pace in four decades, many economists and policymakers say a slowdown is just what the economy needs right now .
But a cooling economy carries its own risks. Despite inflation, the recovery from the pandemic recession has been among the strongest on record, with unemployment falling rapidly and incomes rebounding fastest for those at the bottom. If the recovery slows too much, it could undo much of that progress .
That delicate balance makes interpreting monthly jobs reports trickier than usual:
The number that usually gets the most attention — the overall number of jobs added or lost — won’t reveal whether the mismatch between supply and demand is easing.
Many economists say they will be watching the labor force participation rate — the share of the population either working or looking for work — just as closely as the headline job growth figures in coming months. Slowing job growth coupled with a growing labor force could be a sign that the labor market is coming back into balance as demand cools and supply improves. But the same level of job growth without an increase in the supply of workers could indicate the opposite: that employers are having an even more difficult time finding the help they need.
Economists will also be closely watching wage growth, which many say needs to slow in order to bring inflation under control. “That’s something that we’re used to saying pretty unequivocally is good, but in this case it just raises the risk that the economy is overheating further,” said Adam Ozimek, chief economist of the Economic Innovation Group, a Washington research organization.
For workers, a cooling labor market could feel like a step backward, at least in the short term. Wage growth will be slower. Job opportunities will be fewer. Workers will have less leverage to demand flexible schedules or other perks.
But the Biden administration argues that a cooling economy is a necessary transition that will be better for workers in the longer run.
“Where we are going to is a period of more stable growth, more resilient growth, that should look different than that historically fast recovery,” Brian Deese, a top economic adviser to Mr. Biden, said in an interview. The administration’s goal, he added, is a more sustainable recovery “that generates more economic opportunities and more economic security for middle-class families than the prepandemic economy did.”
For the Fed, slower job growth would be good news.
Federal Reserve officials are closely parsing economic data, including Friday’s jobs report, with an unusual goal in mind: They would like to see growth slow down.
The central bank is trying to cool the economy, hoping that weaker demand, hiring and wage growth will help inflation to moderate. Prices are increasing at a rate that is near the fastest in 40 years, and Fed policymakers have been clear that swiftly wrestling inflation lower is their top priority.
By lowering inflation, central bankers are seeking to lay a foundation for sustainable future growth, even if it comes at a cost to the economy’s strength today. Officials are hoping that they can help price gains to abate without touching off a recession or higher unemployment, though they acknowledge that achieving that goal will be a challenge.
Policymakers will be watching for signs that worker shortages in the labor market, in which employers now have 1.9 open positions for every unemployed worker, are beginning to ease. Friday’s report is the last before the Fed meets to vote on its next policy move on June 14 and 15.
“With our No. 1 challenge being the need to get inflation down, we do expect to see some cooling of a very, very strong economy over time,” Lael Brainard, the Fed’s vice chair, said in a CNBC interview on Thursday. “We’ll be looking closely to the data to see that kind of cooling in demand, and moderation — better balance — in the labor market.”
Ms. Brainard said that she was looking for a string of data that shows slower demand, the labor market coming into balance and decelerating inflation data “to feel more confident.”
Fed officials raised interest rates by a quarter of a percentage point in March and by a half-point in May, moves meant to make taking on debt to buy a house or expand a business more expensive. The central bank has signaled that it will make half-point increases in June and July, and Ms. Brainard suggested this week that the central bank might make another half-point increase in September if inflation has not eased by then.
The Fed is also shrinking its balance sheet of bond holdings. Those two policies — balance-sheet reduction and rate changes — work together to push up borrowing costs across the economy.
Still, it is unclear how quickly central bankers will be able to bring price increases down to their goal as the war in Ukraine and lockdowns in China threaten to keep supply constrained and gas and food prices high, adding to already-intense inflation pressures. Rising wages could further complicate the picture, prompting employers to charge more to cover climbing labor costs and giving some households the wherewithal to continue spending.
The Fed aims for 2 percent inflation on average over time, but prices are climbing much more quickly than that: They picked up by 6.3 percent overall and 4.9 percent excluding food and fuel over the year through April.