U.S. economy adds solid 390,000 jobs in May

The numbers:

The U.S. added a higher-than-expected 390,000 new jobs in May, signaling the labor market is still going strong despite some fraying around the edges.

Economists polled by The Wall Street Journal had forecast a smaller increase of 328,000 new jobs after some reports leading up the government’s employment survey had hinted at slower hiring last month.

The increase in hiring was the smallest in 13 months and breaks a string of 12 straight gains of at least 400,000 or more. Yet economists says employment growth was bound to slow as the U.S. recovered most of the jobs lost during the pandemic.

The unemployment rate was unchanged at 3.6%, the government said Friday, and was just a tick above the pre-pandemic low.

In premarket trades, stocks were little changed after the jobs report.

Wall Street investors and the Federal Reserve were on full alert before the May employment report. Investors are looking for clues the economy is beginning to soften as the central bank moves to sharply raise interest rates to curb the highest inflation in 40 years.

The Fed, for its part, would like the red-hot labor market to cool off a bit to prevent further upward pressure on inflation. Wages have soared in the past year and are now adding significantly to the cost of doing business.

Hourly wages rose 10 cents, or 0.3%, to $31.95 in May.

The increase in worker pay over the past year slowed to 5.2% from 5.5%, however. While wages have risen at the fastest pace since the early 1980s, the gains appear to be tapering off.

Even with bigger paychecks, workers still can’t keep up with the cost of living.

Inflation has climbed 8.3% over the past year, and while it’s expected to slow, Americans can’t expect much relief in the near future.

Big picture: Wall Street and Washington want a Goldilocks kind of labor market: Not too hot, but not too cool.

The longer the labor market sizzles, the higher wages could go as business scramble for workers. That could worsen inflation and lead to a dreaded wage-price spiral, which the U.S. hasn’t seen since the 1970s.

Yet if the jobs market cooled off too much, it could dampen consumer spending and add to growing worries about a recession. The economy is all but certain to decelerate owing to higher interest rates.

Looking ahead: “Hiring slowed slightly in the U.S. in May, but it remained too hot for the Fed’s comfort,” said economist Katherine Judge of CIBC Economics.

Market reaction: The Dow Jones Industrial Average DJIA and S&P 500 SPX were set to open lower in Friday trades.

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