On Friday, the Labor Department said in its closely watched jobs report that nonfarm payrolls increased by 339,000 jobs last month. Data for the month of April has been revised to show an increase in employment of around 294,000 jobs, not 253,000 as shown in a previous report.
Economists polled by Reuters expected jobs to rise by around 190,000.
The surprisingly strong results in the US labor market came despite regulators’ efforts to quell demand and rein in inflation. The central bank has hiked interest rates 10 times since the start of last year.
Despite the strong hiring drive, the unemployment rate hit 3.7%, the highest rate in 6 months, from a 53-year low of 3.4% in April.
Wage pressures are also easing, providing relief to Federal Reserve officials struggling to bring inflation back to the Fed’s 2% target. Average hourly earnings rose 0.3% after rising 0.4% in April. That reduced the annual wage increase to 4.3%, after rising 4.4% in April. Average annual wage growth was around 2.8% before the Corona pandemic spread.
The report says the labor market remains strong and shows more evidence that the economy is far from the recession people fear, although more vulnerabilities are emerging.
Temporarily stop generating interest
While higher interest rates are expected to slow the economy as borrowing costs rise, making it more expensive to borrow money for large purchases or expansion of a company, the latest numbers could present a challenge for policymakers considering pausing to raise interest rates. .
“The data shows that job growth is continuing at a rapid pace, but wage pressures are not increasing,” Rubela Farooqui, chief economist at High Frequency Economics, told AFP.
Although the jobs numbers are much higher than analysts had expected, Farooqi said the payrolls data could give the Fed leeway to freeze policy.
Speaking to Bloomberg, Farooqi said she maintained her expectation that the Fed would keep its policy stable at the next meeting.
Fed policymakers are due to meet in mid-June, and some senior U.S. central bank officials signaled this week that they may not adopt another hike at their next meeting.
The main factor in this regard is that officials are anxiously awaiting the delayed effects of interest rate hikes that have been passed on to various sectors of the economy while they decide whether further action is needed.
One area of ​​particular concern is that strong demand for workers and continued wage growth could fuel inflation. But if wage gains do not pick up, it could ease the pressure on policymakers.
Following the release of the jobs data, traders bet that the US central bank would raise interest rates in June as well as July, although investors are still leaning towards a pause in rate hikes.
The new jobs report, which gives mixed signals, may support the Federal Reserve’s argument that it should wait for more data before deciding on the next course of interest moves, which supports the idea of temporarily halt interest rates this month, with the possibility of returning to raise them again in the summer.
“Many Fed officials have indicated that they are likely to hold interest rates at their next meeting in June, but are unlikely to cut them at any time,” Mike Fratantoni told AFP. , chief economist of the Mortgage Bankers Association. likely to support this approach to some extent.
In the same context, Stephen Stanley, chief US economist at Santander Bank, told Bloomberg: “I still think the Fed will suspend the increase in June.”
“Whether the next increase is in July or September, or both, will depend primarily on inflation data, but continued strength in the labor market will have a marginal impact on the need for further monetary tightening,” he said. he added.
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