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The U.S. economy added a far-better-than-expected 272,000 jobs in May, while the unemployment rate edged up to 4%, its highest level in more than two years. The labor market remains strong, with good news in terms of growth and participation. It continues to fuel the economy and support workers. At the same time, the report has some concerning, underlying numbers to watch, such as the unemployment rate, wage growth, part-time employment rate and the number of discouraged workers leaving the workforce.

The Numbers*:

The U.S. economy added 272,000 jobs, higher than the previous 12-month average of +232,000 jobs per month. Gains were far greater than the +190,000 a Dow Jones survey predicted.

The unemployment rate increased slightly to 4.0%. The number of unemployed people also rose somewhat to 6.6M. Discouraged workers and those working part-time jobs for economic reasons remained the same at 7.4%. An unemployment rate of 4.0% is still historically low.

The number of open jobs decreased to 8.1M.

Labor force participation dropped from 62.7% to 62.5%. Driven by fewer workers in the 20-24 age range. Participation in the prime age population (25-54) rose to its highest level in 22 years. 250,000 individuals left the labor force altogether in May.

• Average hourly earnings increased by 14 cents, or 0.4%, to $34.91.
• Average weekly hours worked remained at 34.3 hours per week. In manufacturing, the average work week was unchanged at 40.1 hours, but overtime increased from 2.9 to 3.0 hours per week.
• The total number of hires and total separations changed slightly to 5.6M and 5.4M, respectively.
• Within separations, quits were 3.5M, and layoffs and discharges were 5.4M.

March was revised down by 5,000, from +315,000 to +310,000, and April was revised down by 10,000, from +175,000 to +165,000.

Industry Trends:

The breadth of hiring in May, across all industries and in the manufacturing sector, was at its highest in sixteen months. Broad growth helped raise 12-month averages in industries that had been trending lower.

Interesting, Related Facts:

Economic pressures:
The resilience of the labor market, demonstrated by the strong growth in May, reduces the likelihood that the Federal Reserve will be able to begin cutting interest rates in September, as previously forecast by some economists. The Fed has not lowered rates since 2020 at the onset of the pandemic. The Fed hiked rates 11 times between March 2022 and July 2023 and is not likely to cut rates without a clear signal from labor market data.

The higher-than-expected wage gain could indicate that inflation may prove stickier than hoped. The increased unemployment rate could, however, temper that. Wage growth of 3.0% to 3.5% is consistent with the Fed’s 2% inflation target. Wage growth of 4.1% is too high, indicating inflationary pressure, but continued increase in the unemployment rate could bring that down.

Sector growth:
All the major industry groups are now back above their pre-pandemic employment levels. The demand for health care continues to be strong, in part because of the aging U.S. population, but high attrition from burnout also continues to be a challenge – a fact that’s hidden in the numbers. 

Worker groups:
Women are working. The prime-aged (25-54) female participation rate is at a record high of 78.1%. That is just 11.1% below prime-aged males – the lowest gap ever. The rate for prime-aged men edged up to 89.2%, which is below the pre-pandemic rate and significantly below the over-90% rate before the 2008 financial crisis. However, the household survey showed that full-time workers declined by 625,000, and part-time workers increased by 286,000.