US hiring and wage growth picked up last month in sign of sustained economic health

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

Last month’s sizable job gain suggests that the economy is still growing steadily, propelled by consumer spending on travel, entertainment and other services. U.S. airports, for example, reported near-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, the May jobs report should help assuage those fears.

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

President Joe Biden pointed to Friday's jobs report as a sign of the economy’s robust health under his administration. He also charged that congressional Republicans would worsen inflation by cutting health care subsidies and widening the deficit through tax cuts.

The presumptive Republican nominee, Donald Trump, has focused his criticism of Biden’s economic policies on the inflation surge, which polls show still weighs heavily in voters’ assessment of the economy. At a rally in Phoenix on Thursday, he blamed illegal immigration for causing higher prices, an assertion most economists reject.

Economists say the mixed signals from Friday's report — a surge in jobs alongside a slight rise in unemployment — suggest that the job market is normalizing after years of distortions related to the pandemic. After the brutal pandemic recession, when unemployment rocketed to nearly 15%, hiring soared in 2022 and 2023 as the economy recovered. Wages, before adjusting for inflation, also jumped as businesses desperately sought workers.

“Employment growth is continuing at a solid pace, but there are ample signs that the heat in the labor market over the past few years largely has been removed,” said Sarah House, an economist at Wells Fargo.

The number of open jobs, while still elevated, has fallen to a three-year low. Fewer workers are quitting jobs. Many employers say it's become easier to find workers to fill positions.

But growth in hourly paychecks accelerated last month, a welcome gain for workers but one that could contribute to stickier inflation. Wages rose 4.1% from a year ago, above the inflation rate. Some companies may raise their prices to offset their higher wage costs.

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

Friday's report will likely underscore Fed officials' intention to delay any cuts to their key rate while they monitor inflation and economic data. Most economists expect no Fed rate reductions before September at the earliest. Once the cuts do begin, lower rates on many consumer and business loans, including for mortgages and autos, should follow.

Though Chair Jerome Powell has said he expects inflation to further ease, he has said the Fed's policymakers need more confidence that inflation will fall back to their 2% target before they would reduce borrowing costs. Annual inflation has declined to 2.7% by the Fed’s preferred measure, from above 7% in 2022.

“This report is going to complicate the Fed’s job," said Julia Pollak, chief economist for ZipRecruiter. “No one’s getting those very clear signals that they were hoping for that a rate cut is appropriate in July or September.”

Last month's hiring occurred broadly across most of the economy. But gains were particularly robust in health care, which added 84,000 jobs, and restaurants, hotels, and entertainment providers, which gained 42,000.

Governments added 43,000 positions. Professional and business services, which include managers, architects and information technology, grew by 33,000.

One company that is steadily hiring is Recovia, a health provider based in Phoenix that treats mental health, substance abuse and chronic pain. CEO Lance Fritz said the company plans to open three clinics in the next 12 months, each of which will employ 12 to 14 people.

It's become easier, Fritz said, to hire administrative workers. But competition is still high for the nurses, physical therapists, and other clinicians they need. And his employees have pushed for — and received — higher pay to offset the effects of inflation and Phoenix's high housing costs.

“We’re paying more for people than we used to, that’s for sure,” Fritz said.

The company is considering using artificial intelligence, he said, to automate some administrative tasks so its employees can spend more time with patients.

One potential sign of weakness in the May employment report was a drop in the proportion of Americans who either have a job or are looking for one; it fell from 62.7% to 62.5%. Most of the drop occurred among people 55 and over, many of whom are retiring baby boomers.

A surge in immigration in the past three years has boosted the size of the U.S. workforce and has been a key driver of the healthy pace of job growth.

With companies posting fewer job openings, many are also hiring more gradually. A key reason why the economy is still showing a net gain in jobs is that layoffs have reached one of their lowest levels in the past two decades.

“Employers are being slow to hire, and slow to fire,” Pollak said. “Workers are being slower to switch jobs.”

Shane Bombara has seen first-hand the more gradual pace of hiring by many companies. A 32-year-old Pittsburgh resident, Bombara began seeking a new job in January, after business at the life sciences firm where he worked as a sales manager plummeted after COVID. He ramped up his job search after being laid off in April.

There are now fewer jobs in his field than there were in January, he said, and more competition: There are up to 200 applicants on LinkedIn for jobs he has applied for.

Bombara, who has an MBA and nearly seven years' experience in his field, has been frustrated by the impersonal response of many employers. He’s applied for 104 jobs and received three interviews. Only one employer has actually turned him down. The two others simply haven’t followed up.

“It’s kind of demoralizing when you just get these canned emails where it’s like, ‘OK, we’re not going to pursue you,’ " Bombara said. "And you see enough of those pile up and you’re like, ‘OK, what’s wrong here?’ ”