Employers Add a Robust 272,000 Jobs in May Despite High Interest Rates

Last month’s sizable job gain suggests that the economy is growing steadily, propelled by consumer spending on travel, entertainment, and other areas of the service sector.

AP/Nam Y. Huh, file
A construction project at Mount Prospect, Illinois, February 26, 2024. AP/Nam Y. Huh, file

WASHINGTON — America’s employers added a strong 272,000 jobs in May, accelerating from April and a sign that companies are confident enough in the economy to keep hiring despite persistently high interest rates.

Last month’s sizable job gain suggests that the economy is growing steadily, propelled by consumer spending on travel, entertainment, and other areas of the service sector.

American airports reported record traffic over the Memorial Day weekend. A healthy job market typically drives consumer spending, the economy’s principal fuel. Though some recent signs had raised concerns about economic weakness, May’s jobs report should help assuage those fears.

Still, Friday’s report from the government included some signs of a potential slowdown. The unemployment rate edged up for a second straight month, to a still-low 4 percent, from 3.9 percent, ending a 27-month streak of unemployment below 4 percent. That streak had matched the longest such run since the late 1960s.

President Biden is still likely to point to Friday’s jobs report as a sign of the economy’s robust health under his administration. The presumptive Republican nominee, President Trump, has focused his criticism of Mr. Biden’s economic policies on the surge in inflation, which polls show still weighs heavily in voters’ assessment of the economy.

Hourly paychecks also accelerated last month, a welcome gain for laborers but a trend that could contribute to stickier inflation. Hourly wages rose 4.1 percent from a year ago, faster than the rate of inflation and more quickly than in April. Some companies may raise their prices to offset their higher wage costs.

The Federal Reserve’s inflation fighters would like to see the economy cool a bit as they consider when to begin cutting their benchmark rate. The Fed sharply raised interest rates in 2022 and 2023 after the vigorous recovery from the pandemic recession ignited the worst inflation in 40 years.

Annual inflation has declined to 2.7 percent by the Fed’s preferred measure, still above the Fed’s 2 percent target. Cooler hiring over time could slow wage gains and help fully tame inflation. Chairman Jerome Powell has said the Fed needs greater confidence that inflation is returning sustainably to its target before it would reduce borrowing costs.

When the Fed began aggressively raising rates, most economists expected the resulting jump in borrowing costs to cause a recession and drive unemployment to painfully high levels. Yet the job market has proved more durable than almost anyone had predicted. Even so, Americans remain generally frustrated by high prices, a continuing source of discontent that could imperil Mr. Biden’s re-election bid.

A key reason why the economy is still producing solid net job growth is that layoffs remain at historic lows. Just 1.5 million people lost jobs in April. That’s the lowest monthly figure on record — outside of the peak pandemic period — in data going back 24 years. After struggling to fill jobs for several years, most employers are reluctant to lay off employees.

Associated Press

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