The US economy created 559,000 jobs in May as the unemployment rate fell to 5.8 per cent, suggesting the labour market has regained some strength amid fears that worker shortages were holding the recovery back.
The non-farm payrolls data released by the US labour department on Friday was slightly worse than economists’ expectations of about 650,000 employment gains, but marked an improvement over the 278,000 jobs posted in April.
The figures were released at a pivotal moment for the US economy, with growth rebounding strongly thanks to the lifting of pandemic restrictions across the country and hefty fiscal stimulus, while triggering a burst of inflation.
Meanwhile, businesses have been complaining that they are struggling to rehire workers to cope with surging demand, prompting them to raise wages in a bid to attract new employees.
The dip in the jobless rate, from 6.1 per cent in April, brought it below 6 per cent for the first time since the start of the pandemic, but labour force participation declined, suggesting there was still some hesitance among Americans to rush back into the workforce.
The pace of hiring in the leisure and hospitality sector fell from 328,000 in April to 292,000 in May, but other sectors including transportation and warehousing, manufacturing, healthcare and temporary jobs recorded improvements. Average hourly earnings rose to $30.33 last month, compared to $30.18 in April and $29.74 in May 2020, offering evidence of increased pay across the economy.
The Biden administration had been taken by surprise and put on the defensive by the lacklustre jobs performance in April, as Republicans questioned the effectiveness of its economic policies. But the White House cheered last month’s rebound, even if it leaves the US economy still 7.6m jobs short of its pre-pandemic level.
“This is historic progress — progress that’s pulling our economy out of the worst crisis it’s been in for 100 years,” Joe Biden, the president, said in remarks on the data delivered from Rehoboth Beach, Delaware.
The May jobs report comes as policymakers at the Federal Reserve are preparing to open a discussion on easing some of the massive monetary stimulus pumped into the US economy since the start of the pandemic.
The central bank has been buying $120bn of assets every month since last year, and monetary policymakers have signalled intent to begin talking about “tapering” that pace of bond purchases — though they have not said when they expect to start that process.
“We have been on a rollercoaster ride as far as economist estimates go,” said Emily Roland, co-chief investment strategist at John Hancock Investment Management. “It looks like there is a bit of an air pocket in the jobs recovery and it may take longer than expected for the labour market to heal.”
Roland said the “disappointing” jobs report bolsters the Fed’s case to be patient when it comes to removing its policy support. “Today’s jobs report provides evidence that the Fed has been right in their assessment that there is way to go until we see maximum employment,” she said.
US government bonds rallied sharply following the weaker than expected jobs report. The benchmark 10-year note was more than 0.06 percentage points lower on the day to trade about 1.56 per cent.
Five-year Treasury yields fell as well, with yields dropping by 0.06 percentage points to 0.78 per cent, while two-year Treasuries, which are more sensitive to monetary policy changes, steadied around 0.145 per cent.