Job Market Still Growing, Showing First Signs of Cooling

U.S. employers added 390,000 new jobs in May, possibly indicating the beginning of a slowdown in job creation, according to the latest employment report from the Bureau of Labor Statistics. Over the past year, at least 400,000 jobs were added each month.

The unemployment rate held at 3.6 percent, close to what is considered full employment and near pre-pandemic levels. And while employers are offering higher wages to attract talent, many on the sidelines are unmoved: the gap between job openings and available workers remained at 5.5 million in April, or about two jobs for every unemployed worker.

"Employers are adding jobs at a very brisk rate despite the low levels of unemployment," said Nick Bunker, the economic research director for North America at the Indeed Hiring Lab. "If demand continues to be strong, then more and more workers should be pulled into the labor market. Job growth will eventually slow down, but for now it's still humming."

Becky Frankiewicz, ManpowerGroup chief commercial officer, North America president, said that the report "shows a defiantly strong job market as demand for workers rises unabated across industries. Amid a storm of uncertainty about the overall economy, the labor market stands as a pocket of stability."

Employment is still down by 800,000 jobs from its pre-pandemic level in February 2020.

"Despite concerns about a slowdown and even a recession, the labor market's fundamentals look healthy," said Daniel Zhao, Glassdoor senior economist. "April's JOLTS report showed near record high labor demand and record low layoffs. The slowdown in jobs growth pushes back the time when we may expect to return to pre-pandemic levels, but continued jobs growth at this level would push us to reach that milestone by the fall."

Richard Wahlquist, CEO of the American Staffing Association, based in Alexandria, Va., said there's reason to be cautiously optimistic about the current strength of the economy, but "with nearly two job openings for every unemployed person in this country, our country continues to experience labor supply imbalances and a skills gap crisis that is a worrisome headwind on economic growth. The gap between the open jobs in this country and the skills of current job seekers is not narrowing. Looking ahead, our economy needs a multi-faceted solution that focuses less on traditional four-year degrees and more on acquiring skills."

Ron Hetrick, senior labor economist at Emsi Burning Glass in Moscow, Idaho, said that with 11.4 million job openings, 390,000 jobs added, and unemployment holding at 3.6 percent, the tight labor market continues to be bad news for employers

"These are not the type of gains we need if we're to ease the tight labor market," he said. "We have a low unemployment rate, a decent job gain, and yet we still have 11.4 million job openings. That makes life very difficult for employers."

Broad Sector Gains

Once again, leisure and hospitality led the way in employment growth, Bunker said, adding 84,000 jobs. More than half of those were reported in bars and restaurants.

"While there may be some signs of consumption shifting toward services, jobs growth remains strong in goods and goods-related industries," he added.

Professional and business services (75,000 jobs added), transportation and warehousing (47,000 jobs added) and construction (36,000 jobs added) also posted solid gains. Employment in health care rose by 28,000 in May, and manufacturing employment continued to trend up last month, with 18,000 jobs added.

Employment in retail declined by 61,000 in May but is 159,000 above its February 2020 level. Half of that decline was in general merchandise stores, likely a reflection of high inventories, said Rucha Vankudre, senior labor economist at Emsi Burning Glass. "Retail inventories have been climbing, and it looks like stores have hit their hiring peak," she said. "This will be an important number to watch in future reports as an indicator of retail direction."

The majority of industries contributed gains, said Julia Pollak, chief economist at ZipRecruiter. "The private sector has now recovered 99 percent of the jobs lost in the pandemic; the public sector only 58 percent," she said.

She added that job gains in May were almost double the monthly average job gain before the pandemic. "And job gains would have been even higher were they not restrained by tight labor supply."

Frankiewicz said that at ManpowerGroup, employers continue to be bullish on hiring across sectors, especially among large enterprises, and with technology skills among the most in demand. "When you look at the overall labor landscape, it's clear that the empowered worker is still in the driver's seat of employment," she said.

Job postings on ZipRecruiter rose 3 percent in May. Pollak said that businesses are hiring both to replace turnover and expand headcount but held back by high turnover and persistent labor shortages.

Unemployment Stays Flat

The unemployment rate held at 3.6 percent for the third straight month. A more encompassing measure of unemployment that accounts for those not looking for jobs and those holding part-time positions for economic reasons moved slightly higher to 7.1 percent.

"While the unemployment rate didn't improve, the underlying data was healthy, showing a rise in labor force participation and a negligible change in unemployment levels," Zhao said.

The labor force participation rate, which measures the share of the population working or looking for work, ticked up to 62.3 percent from 62.2 percent in April, a sign that bountiful jobs and higher wages are slowly luring people back to work.

"Job gains would have been even higher were it not for the decline in labor force participation caused by the pandemic," Pollak said. "Labor force participation rates have recovered for teenagers and the prime-age population, but are still almost 3.5 percentage points lower than before the pandemic for workers aged 20-24 and those over age 55."

Strong demand continues to pull workers back into employment, Bunker said. "Unemployed workers also continue to find work, as the job-finding rate for these workers rose in May and remains higher than its pre-pandemic average. And while more workers are getting jobs, the data show no sign of a pick-up in layoffs."

Wage Growth Eases

Wages continued to climb last month, though at a slower pace. Competition for workers amid a severe labor shortage has driven up annual wage increases above 5 percent every month of this year. By contrast, wage gains averaged 3.2 percent in the 12 months to February 2020.

"Average hourly earnings grew 5.2 percent year-over-year in May, slowing from 5.5 percent in April," Zhao said. "While the slowdown may not be welcome news to workers, it is a signal that inflation may moderate as monetary policy continues to tighten. Accelerating wage growth would raise concerns of a wage-price spiral."

Pollak said that year-over-year wage growth in leisure and hospitality has now been over 10 percent for 10 straight months. Frontline workers in that industry are experiencing particularly rapid growth of 11.8 percent. "Further recovery in labor force participation is likely to take the boil off wage growth," she said.