Mining wage

Job growth slowed in May, but wage increases remained high

Workers remove steel panels from Rivian electric vehicle (EV) trucks from a hydraulic press at the company’s manufacturing facility in Normal, Ill., April 11, 2022.

Jamie Kelter Davis | Bloomberg | Getty Images

The pace of job growth is expected to have slowed in May, but economists say the labor market remains strong, even as parts of the economy have weakened.

Economists expect employers to add 328,000 new jobs, down from the 428,000 added in April, according to Dow Jones. The unemployment rate is expected to fall to 3.5% from 3.6%.

Average hourly earnings are expected to have risen 0.4%, up from April’s 0.3% increase. Year-over-year wage growth is expected to slow slightly to 5.2% from 5.4% in April.

“I suspect it’s the average hourly wage that might turn people on,” said Michael Schumacher, head of macro strategy at Wells Fargo. “The Fed has also been pretty consistent – it’s inflation, inflation, inflation. If it’s 0.5%, you’re probably getting a reaction. If it’s 0.6%, it’s is pronounced.”

Schumacher said a higher payroll number could trigger selling in stocks and bonds, while the market might not react as much if the payroll number doesn’t match forecasts. When bonds sell, yields rise.

Payrolls data is being watched closely for any cracks in the labor market as the Federal Reserve raises interest rates. But economists say there are no signs of weakness yet, and that’s one part of the economy that should remain strong for now.

“The problem with labor market data is that we already have more real-time data that gives us a better indicator,” said Tom Simons, money market economist at Jefferies. He noted that weekly jobless claims unexpectedly fell to a low 200,000 last week.

“We hear these anecdotal reports of company X cutting thousands of jobs. It’s either that it’s not really happening yet… or people are being laid off and immediately finding other jobs,” he said. he declares.

Monthly job growth has been well over 400,000 over the past year, and economists say that based on the shortage of workers, it will naturally slow.

Barclays US economist Pooja Sriram said she expects 375,000 payrolls to be added in May.

“We think the momentum is definitely going to slow down from now on. It’s just the nature of the job market,” she said. “We expect the turnout to pick up gradually. We saw the number decline by 0.2 in April, but I think there will be some retracement. We expect an improvement of 0.1. “

The participation rate is closely watched by economists and shows how many people able to work have a job or are looking for a job. The rate was 62.2% in April.

Payroll data from May is still expected to show the impact of returning workers, who may have had Covid-related issues preventing them from working. “There is a certain cohort of people who want to get back into the workforce because Covid restrictions have eased and because inflation has picked up,” Sriram said.

The labor market still lacked 1.2 million workers in April compared to pre-pandemic levels, but economists note that many people have retired.

“We’re likely settling into a lower job growth trajectory. The labor force participation rate has recovered all of the Covid-related drop we experienced in the spring of 2020,” Simons said. “I don’t think there’s a bunch of people who are out of the labor force and about to be re-entered. There are about two job openings for every unemployed person.”

Simons said he wasn’t buying the markets’ narrative that the economy was going to slow, forcing the Fed to pause its aggressive interest rate hikes. The central bank raised rates by half a percentage point last month and is expected to raise rates by the same amount later in June and again in July.

“I find there are a lot of people saying the economy is weakening very broadly, but really I think when people say that they just think of the housing data. I can’t say that the housing data is not bad.”

Higher mortgage rates combined with rising house prices had a quick deterrent effect on the real estate market. Existing home sales in April fell 2.4% from March, the slowest pace since the pandemic began.

“The market is also adjusting to a huge increase in the cost of financing home purchases over the past few months, and it’s natural that we get a downturn,” Simons said. “The Fed wants that. I don’t think we’re seeing a big housing bust.” He noted that ISM manufacturing data continues to show a robust economy.

“Consumer spending is still strong and that’s going to be supported by a strong labor market and wages,” he said.

However, Diane Swonk, chief economist at Grant Thornton, said the housing market could be a “canary in the coal mine” for the economy.

She expects the labor market to also be affected by Fed tightening. She expects 375,000 new jobs to have been added to the payroll in May, but over the summer and fall job growth could slow. She said it could fall back to a more normal pace in line with the 186,000 average monthly payrolls added in the decade before the pandemic.

“We could see declines,” she said. Fed officials are “beginning to define what a soft landing is, and that’s higher unemployment than the current rate. It’s hard to get there without some job cuts at some point.”