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Key takeaways

  • The Bureau of Labor Statistics (BLS) reported that the U.S. economy added 272,000 jobs in May 2024, a much better-than-expected report as it easily beat consensus expectations. However, there were modest downward revisions to job growth of 15,000 combined for the prior two months.
  • The unemployment rate ticked up slightly to 4% in May, the highest level since January of 2022.
  • Meanwhile, average hourly earnings were up 0.4% month-over-month (MoM) and 4.1% year-over-year (YoY) in May, a step back for the Fed and higher than they would like with the upward revision to the April data.
  • Our strategists’ view is that the May jobs data underscores the idea that the economy remains stronger than many people might think. And the Fed will need to see further confirmation in economic data that the economy is cooling before considering rate cuts later this year.

Contributors

John Veit

 

A resilient jobs market

The labor market continues to show resilience, surprising to the upside and supporting economic growth. The U.S. labor market added 272,000 jobs in May, marking an acceleration in the pace of hiring following 165,000 gains in April. However, there were modest downward revisions to job growth of 15,000 combined for April’s and March’s nonfarm payrolls.1

May’s nonfarm payroll gains bring the three-month average employment gain to 249,000.2 That pace is likely not sufficient to bring inflation down to the Federal Reserve (Fed)’s 2% target. That said, still high interest rates should help the economy and inflation continue to gradually cool to a more normal equilibrium. 

This bar graph shows the monthly nonfarm payroll employment change in thousands from April 2023 to May 2024.

U.S. nonfarm payroll employment

 

In thousands

 

This chart shows the monthly nonfarm payroll employment change in thousands from April 2023 to May 2024. The chart has two lines representing the 3-month moving average and 2018-2019 average monthly change at the level of 178,000.

  • In April 2023, the nonfarm payroll gain was 278,000 and the 3-month moving average was 237,000.
  • In May 2023, the nonfarm payroll gain was 303,000 and the 3-month moving average was 273,667.
  • In June 2023, the nonfarm payroll gain was 240,000 and the 3-month moving average was 273,667.
  • In July 2023, the nonfarm payroll was 184,000 and the 3-month moving average was 242,333.
  • In August 2023, the nonfarm payroll gain was 210,000 and the 3-month moving average was 211,333.
  • In September 2023, the nonfarm payroll gain was 246,000 and the 3-month moving average was 213,333.
  • In October 2023, the nonfarm payroll gain was 165,000 and the 3-month moving average was 207,000.
  • In November 2023, the nonfarm payroll gain was 182,000 and the 3-month moving average was 197,667.
  • In December 2023, the nonfarm payroll gain was 290,000 and the 3-month moving average was 212,333.
  • In January 2024, the nonfarm payroll gain was 256,000 and the 3-month moving average was 233,667.
  • In February 2024, the nonfarm payroll gain was 236,000 and the 3-month moving average was 264,667.
  • In March 2024, the nonfarm payroll gain was 315,000 and the 3-month moving average was 269,000.
  • In April 2024, the nonfarm payroll gain was 175,000 and the 3-month moving average was 242,000.
  • In May 2024, the nonfarm payroll was 272,000 and the 3-month moving average was 254,000.

 

Source: Bloomberg Financial L.P. Data as of June 7, 2024.

This bar graph shows the monthly nonfarm payroll employment change in thousands from April 2023 to May 2024.

 

Industry breakdown

Payroll gains in March were mostly broad-based and likely boosted by seasonal factors, such as weather conditions. Job gains continue to be driven by health care and social assistance (+84,000), government (+43,000) and leisure and hospitality (+42,000).3 So far this year, the most job additions have been in areas like professional and business services.

Employment in professional, scientific and technical industries also ticked higher, adding 32,000 jobs combined in May. This marks an acceleration from the combined average monthly gain of 19,000 over the past year.4

This bar graph shows the monthly change in payrolls by industry of May 2024.

U.S. monthly change in payrolls by industry: May 2024

 

Employment change

 

This chart shows the monthly change in payrolls by industry of May 2024.

  • In the healthcare industry, the monthly gain was 83,500.
  • In the Fed, state & local government, the monthly gain was 43,000.
  • In the leisure and hospitality industry, the monthly gain was 42,000.
  • In the professional and business industry, the monthly gain was 33,000.
  • In the construction industry, the monthly gain was 21,000.
  • In the retail trade industry, the monthly gain was 12,600.
  • In the transportation industry, the monthly gain was 10,600.
  • In the financial activities industry, the monthly gain was 10,000.
  • In the manufacturing industry, the monthly gain was 8,000.
  • In the other services industry, the monthly gain was 6,000.
  • In the wholesale trade industry, the monthly gain was 3,100.
  • In the educational services industry, the monthly gain was 2,000.
  • In the utilities industry, the monthly gain was 1,300.
  • In the information services industry, there was no monthly change.
  • In the mining industry, the monthly decline was 4,000.

 

Source: Bloomberg Financial L.P. Data as of June 7, 2024.

This bar graph shows the monthly change in payrolls by industry of May 2024.

 

Unemployment rates and growth

While the labor market remains stronger than expected with May’s solid headline jobs data, underlying data reveals signs of slowing. Some of the numbers show that we’re starting to see the job market come into better balance, which should slow the pace of job growth. The overall unemployment rate rose to 4% in May from 3.9% the prior month, the highest level in over two years.5 This rise was driven by people who were unable to find work after returning to the labor force, as less people lost or left their jobs in May.

Meanwhile, the labor force participation rate, which measures the number of people working or searching for work, fell slightly to 62.5%, the lowest level since the beginning of 2024. This was driven by a decline among workers aged 55 and older, which offset the rise in the rate of workers aged 25 to 54 to the highest level since 2002.6

Average hourly earnings (preliminary reading), an important measure for inflation, rose by a stronger 0.4% month-over-month (MoM) and 4.1% year-over-year (YoY) in May. This slight rise was partially distorted by a rise in California’s state minimum wage for fast food workers, which was reflected in the greater 0.5% MoM gain in leisure and hospitality average hourly earnings compared to the 0.1% MoM gain the month prior.7 While wage growth still remains too strong for the Fed, forward-looking indicators suggest it will likely moderate later this year. 

The number of job openings fell to 8.1 million in April from 8.4 million the prior month, according to the Bureau of Labor Statistics (BLS) Job Openings and Labor Turnover Summary (JOLTS) report released this week.8 This marks the lowest level in over three years and brings down the job openings-to-unemployed-people to 1.24.9 The decline in job openings, along with other indicators such as the rebound in labor supply, are signs that the labor market is normalizing.

Rate implications

Our strategists’ view is that the May jobs data underscores the idea that the economy remains stronger than many people might think. And the Fed will need to see further confirmation in economic data that the economy is cooling before considering rate cuts later this year.

At May’s Federal Open Market Committee (FOMC) meeting, the Fed held policy rates steady for the sixth consecutive meeting, leaving the federal funds target rate unchanged at 5.25% to 5.5%.10 On May 14, Fed Chairman Jerome Powell reiterated the timing of a future rate hike or cut remains uncertain and data-dependent. Powell expressed skepticism that a rate hike would be the Fed’s next move and also emphasized inflation needs to move materially closer to 2% before the Fed will consider adjusting the policy rate.11

Inflation has made welcome progress but still remains too high for the Fed – The Consumer Price Index (CPI) rose by a softer-than-expected 3.4% YoY in April, a slight downtick from the 3.5% YoY rise in March.

On June 11–12, the FOMC meeting will coincide with the May inflation data release, factoring into the Fed’s decision on the path for rates moving forward. However, it’s important to note the Fed’s preferred measure of inflation, the Personal Consumption Expenditures (PCE), will be released later this month and will offer another key piece to the overall inflation puzzle.

References

1.

Bureau of Labor Statistics. “The Employment Situation - May 2024.”

2.

Ibid.

3.

Ibid.

4.

Ibid.

5.

Ibid.

6.

Ibid.

7.

Ibid.

8.

Bureau of Labor Statistics, “April Job Openings and Labor Turnover Summary.” (June 2024)  

9.

Bureau of Labor Statistics. “The Employment Situation - May 2024.”

10.

Federal Reserve. “Federal Reserve issues FOMC statement.”

11.

CNBC, “Watch Fed Chair Jerome Powell speak live to bankers group in Amsterdam” (May 2024).

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