Job gains maintained their impressive advance in May, even as government policymakers took steps to cool the economy and dampen inflation.
The Labor Department reported Friday that employers added 390,000 jobs, the 17th straight monthly gain.
The jobless rate was 3.6% for the third month in a row, near a half-century low. Employees’ average hourly earnings increased by 10 cents, or 0.3% on a monthly basis, and were 5.2% higher than a year earlier.
Record levels of consumer spending, which accounts for about 70% of the economy, has spurred business expansion and job creation as businesses try to meet demand for a wide variety of goods and Services. The hiring spurt has given some workers a degree of agency regarding wages and conditions that is unfamiliar to job seekers and employers.
Still, the Federal Reserve fears that rising labor costs will pass through to consumers, hampering efforts to curb inflation, which is near a 40-year high.
Last month, Fed Chairman Jerome Powell pointed out that his institution‘s attempts to cool prices were helping to secure a more sustainable form of full employment. “We need to get back to price stability so we can have a labor market where people’s wages aren’t eaten away by inflation,” he said. “And where we can also have a long expansion.”
The environment for job seekers remains as strong as it has been since the 1960s, according to some economists. The Kansas City Fed’s index of labor market conditions – which is based on 24 measures of market stress – is near highs last seen in 2000.
In a speech this week at the Economic Club in Memphis, Tennessee, James Bullard, president of the Federal Reserve Bank of St. Louis, noted that “real-time indicators” of economic growth suggested the expansion would continue for several quarters.
However, it looks like fewer Americans will be able to fully participate in continued expansion. There are growing signals that low-income families, who have been hardest hit by the price hikes and have depleted much of their pandemic-era savings, are starting to scale back their discretionary purchases. The cost of groceries is an escalating headache and energy prices, which are about 30% higher than a year ago, are forcing people to make tough decisions about goods and services to be cut to avoid a further erosion of their budget.
Inflation has already had a stark impact: Personal savings as a percentage of personal disposable income fell to 4.4% in April, the Commerce Department reported last week. It was the lowest rate since 2008, and a far cry from the anomalous peak of 33% in April 2020 at the height of federal aid.
Throughout the year, inflation and general volatility in the economy created a dissonance between poor consumer sentiment and relatively positive headline data. Current accounts are still above 2019 levels for almost all income groups. And the share of households under duress due to the debt burden is historically low. Auto loan delinquency rates are low. And new bankruptcies and debt collection proceedings are at their lowest level since the New York Fed began collecting data on them in 1999.
The Fed’s objective is to engineer a modest economic slowdown that avoids a painful recession. Gregory Daco, chief economist at EY-Parthenon, an advisory firm, insisted that “whether or not we have a recession is not what matters” over the characteristics of any potential downturn, such as its depth and duration.
“Recency bias makes us think of a recession like the covid crisis or the global financial crisis, but these were ‘once in a hundred years’ events that are unlikely to happen again in the near term” , did he declare. “At the same time, the context of high inflation drew comparisons with the 1970s, but again the situation was different, for 15 years from the late 1960s to the early 1980s and with two moderate recessions and two deep.”