Despite rising prices and a significant increase in borrowing costs, the United States continued to generate jobs at a robust rate last month.
The number of positions increased by 339,000, but the unemployment rate rose to 3.7% from an unusually low 3.5% in April.
The gains were substantially greater than anticipated, sustaining a streak of hiring that has stunned economists.
Analysts anticipated a slowdown in employment as the Federal Reserve raises interest rates to curb inflation.
But payrolls have remained resilient, fostering optimism that the economy will avoid a severe recession and sparking debate over whether the Federal Reserve will need to take more aggressive action to rein in inflation.
In April, the rate of price increase, or inflation, was 4.9% in the United States.
Although this was the lowest rate in approximately two years, it remained well above the 2% rate that the bank considers to be healthy.
Divergent opinions existed regarding what Friday’s report might signify for interest rates in the coming months.
“This is the strangest employment report in quite some time,” said Ian Shepherdson of Pantheon Macroeconomics, referring to the disparity between the Labor Department’s reported increase in unemployment and job gains.
Should I be concerned about the U.S. economy?
As hospitals, restaurants, bars, and construction companies added employees in May, some analysts concluded that the Federal Reserve will have to increase interest rates further.
The Labor Department also reported that the number of positions added by employers in April was greater than previously estimated.
Others argued that the report contained indicators that should persuade the bank to hold off, citing slowing wage growth. The unemployment rate reached 3.7%, the greatest level in seven months.
US President Joe Biden, who has been plagued by public pessimism regarding the economy, hailed the figures as a “good day for the American economy and American workers”
Others, however, stated that the gains may not be sustainable.
Seema Shah, chief global strategist at Principal Asset Management, stated that the “Fed’s job is not yet done” in light of May’s “blow out” employment numbers.
She posed the query, “Can they wait until July, or will this monstrous payrolls number spark a new wave of urgency?”
“Perhaps the details of the report, including a rise in the unemployment rate and a deceleration in the growth of average hourly earnings, shift the decision to July. But generally, the labor market is not decelerating, and if it’s not decelerating, inflation will not fall to 2%.”
If the US central bank continues to raise interest rates, households and businesses pursuing mortgages and other loans will incur higher borrowing costs.
The expectation is that the economy will cool, easing price-inflationary pressures, as higher borrowing costs prompt consumers to reduce spending and businesses to defer expansions and other initiatives.
“By the end of the year, as the impact of Fed tightening feeds into the economy and corporations retrench, we anticipate a material deterioration in labor market conditions and a recession reminiscent of the early 1990s,” said Hussain Mehdi, macro and investment strategist at HSBC Asset Management.
He added, “A delay in this process increases the risk of higher rates for a longer period of time and a deeper recession.”
For now, many on Wall Street appear to be wagering on a pause at the Fed’s June meeting.
In addition to celebrating the passage of an agreement to avert a US default, US stock indexes rose.
The Dow Jones Industrial Average increased by 2.1%, the S&P 500 by 1.45%, and the Nasdaq by 1% at the close of trading.
