The US economy added 172,000 jobs last month, extending the labor market rebound

By Alicia Wallace, CNN

(CNN) — The US labor market appears to have found its footing: The economy added 172,000 jobs in May, shattering expectations, new data from the Bureau of Labor Statistics showed Friday.

The latest jobs report provided some reassurance that the US labor market may be stabilizing after a year of weak and stilted job growth: Unemployment held steady at 4.3%, while employment gains topped 100,000 for the third consecutive month, a pattern not seen since early 2024.

Job growth was also far stronger than initially thought in recent months. March’s payroll gains were revised up by 29,000 to 214,000, while April’s tally was revised higher by 64,000 to 179,000 jobs added.

Following those upward revisions, employment gains ran at a 188,000-job clip for the past three months and a nearly 114,000-job monthly pace year to date – a far and welcome cry from last year, when fewer than 10,000 jobs were added each month.

“I think the job market, for the first time in a while, is moving in the right direction,” Guy Berger, chief economist at small-business payroll firm Homebase, told CNN. “I wouldn’t call this a job market that’s quite ‘booming’ – it’s certainly not as hot as the job market in ’21 and ‘22 – but it’s warming.”

Economists were expecting that employers added 105,000 jobs last month and that the unemployment rate wouldn’t budge from 4.3%.

Worsening inflation concerns

Recent months’ data appears to indicate that the labor market and broader economy remain resilient despite a barrage of shocks — but at the same time, consumer sentiment has hit rock bottom: Americans already worn down by years of high inflation are feeling the squeeze from a war-driven cost crunch.

However, economists caution that a protracted war could keep gas prices high and cut into consumer spending, raise business costs, and trickle into higher prices for other goods and services.

Friday’s jobs report, despite showing stronger-than-expected employment gains, also showed that Americans could have an even harder time keeping up with rising inflation.

Annual wage growth slowed to 3.4% in May from 3.6% the month before. Based on the latest projections for the May Consumer Price Index, which is due out next week, pay gains could be running nearly 1 percentage point below inflation.

“It’s difficult to celebrate an acceleration (of job growth) when one knows that real wages are falling, and that the median worker is likely having a very difficult time keeping up with their own obligations,” Joe Brusuelas, chief economist at RSM US, told CNN in an interview.

Job creation is expanding beyond the healthcare sector

May’s job gains were slightly more broad-based than in prior months, when healthcare employment propped up the labor market.

Hiring ramped up at leisure and hospitality businesses as well as local governments in addition to the stalwart job-generator of healthcare, BLS data showed.

Leisure and hospitality added an estimated 70,000 jobs in May, more than double the gains in April for the industry; the government sector added 52,000 jobs (with local government roles that exclude education accounting for 43,500 of those); and healthcare and social assistance added 47,200 jobs.

The outsized gains in leisure and hospitality as well as local government administration could hint at a “World Cup effect” or possibly a seasonal adjustment quirk in methodology, economists say.

Still, Friday’s report underscored what recent data from BLS, Homebase, ADP and others have been showing: Hiring is starting to broaden among more industries – albeit very slightly.

“We had gains in construction, we had gains in manufacturing, we had gains in transportation for the third month in a row, which is interesting to think because the sector is really getting hammered by energy prices,” Berger said. “Temporary help services has started turning around after a very long period of decline.”

The temp industry, which has largely been in contraction for much of the past four years, has notched five consecutive months of employment growth, BLS data shows. Those jobs are often viewed as a leading indicator of labor demand.

The increases in temporary employment could be reflective of businesses wanting to hire while facing a high-cost environment and not yet wanting to make “long-term bets” on permanent hires, Noah Yosif, chief economist at the American Staffing Association, told CNN this week.

Hiring remains weak for white-collar roles, particularly in information and financial activities, which both shed jobs last month despite a pickup in job openings for professional and business services.

The latest job postings data released this week show that businesses have an appetite to hire more workers; however, economists say employers also might be getting out over their skis when it comes to integrating and hiring around AI.

A cautious, ‘broken’ hiring process

Job growth appears to be on an upward trend; however, the labor market remains fairly entrenched in a low-hire, low-fire stasis, said Lisa K. Simon, chief economist at labor market analytics firm Revelio Labs.

“These industries that are hiring really strongly (health, leisure and public administration), they’re doing a lot of the heavy lifting in this big number here,” Simon said in an interview with CNN. “Underneath, there is still a little bit of that deer-in-the-headlights moment for the rest of the labor market.”

The matching process between job seekers and employers is “broken,” Simon said, noting hiring managers are saying they can’t find the right people while those searching for work aren’t getting offers, let alone responses.

People are staying unemployed for longer: BLS data released Friday showed that the number of job seekers out of work for 27 weeks or longer rose to nearly 2 million people, the highest since December 2021.

“Employers are very, very cautious; I do think that a lot of the uncertainty around inflation, wars, tariffs and the policy environment in general is playing into this,” she said. “On the other hand, workers are staying put and aren’t jumping to new opportunities because there is also this decisive lack of opportunities around – which is why people are holding on for dear life.”

The ongoing Iran war and the cost-of-living pressures from its oil supply and price shock stand as a significant headwind for continued job growth this year, said RSM’s Brusuelas.

“Today’s jobs report kicks off an economic symphony in two movements: The first movement being a strong, robust opening sonata organized around the labor market data,” Brusuelas told CNN. “But the second, more complex and slower movement will feature the inflation data that we’ll see next week. And that is what the Federal Reserve and policymakers should be really worried about.”

Sharply rising gas prices have sent inflation considerably higher in recent months. The Consumer Price Index, the most widely used inflation gauge, started the year at 2.4% and has risen to 3.8% as of April.

The May data, which is scheduled for release on Wednesday, is expected to show that the annual pace of price hikes is running north of 4% for the first time in three years, further eroding Americans’ paychecks.

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