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Hiring remains strong even as Fed tries to cool economy


President Joe Biden speaks about the May jobs report in Rehoboth Beach, Del., on Friday, June 3, 2022.

By Talmon Joseph Smith, Lydia DePillis and Jeanna Smialek


U.S. employers extended an impressive run of hiring in May, even as policymakers took steps to cool the economy in an effort to ease high inflation.


The Labor Department reported late last week that employers added 390,000 jobs, the 17th straight monthly gain. The unemployment rate was 3.6% for the third straight month, a touch away from a half-century low.


At the same time, the labor force grew by 330,000 people, and the share of adults employed or looking for work continued to edge closer to pre-pandemic levels.


The data signaled that the Federal Reserve’s initial moves to dial back its monetary support for the economy were — at least so far — not constraining business activity so much that hiring was feeling a pinch.


After the strong rebound from the depths of the coronavirus lockdowns — all but 800,000 of the 22 million jobs that were lost have been recovered — the Fed has shifted its emphasis from maximum employment to its other mandate: price stability. The challenge is to apply its primary tool, a steady series of interest rate increases, without inflicting a recession.


“I think we’re on sort of what looks like a glide path right now, and that’s good — nothing’s broken,” said Guy Berger, principal economist at the career-focused social network LinkedIn. “But keep fast-forwarding it a year and the question marks are still big.”


The closely watched indicators include the impact on wages, which have been increasing at a pace not seen in decades, though not enough to keep up with inflation over the past year. The Fed is worried that rising labor costs will be passed along to consumers.


On that score, the Labor Department report showed little change in trajectory. Average hourly earnings rose 0.3% from the previous month, the same pace as in April, and were 5.2% higher than a year earlier, compared with a 5.5% year-over-year increase in April.


“It’s moderating, but it’s not moderating to a level, I think, where it’s consistent with the Fed’s inflation goals,” Michael Feroli, chief U.S. economist at JPMorgan, said of wage growth. He said the Fed would probably want wages to cool toward an annualized 3.5% pace, at the higher end, a rate that officials view as aligned with 2% inflation.


President Joe Biden gave a nuanced celebration of the jobs data in remarks Friday, emphasizing recent gains while arguing that a slowdown would be welcome, allowing inflation to ease.


“The point is this: We’ve laid an economic foundation that’s historically strong,” Biden said. “Now we’re moving forward to a new moment, where we can build on that foundation, build a future of stable, steady growth so that we can bring down inflation without sacrificing all of the historic gains that we have made.”


Stocks declined Friday and bond yields rose as investors evidently read the report as reinforcing the Fed’s muscular efforts, which risk denting economic growth. “The better the data, the more difficult that a pause or reduced pace of tightening later this year becomes,” analysts at TD Securities wrote in a research report published after the jobs numbers were released.


The continued job gains are among many indications of a vibrant economy. Reports from the nation’s largest banks show checking accounts are still above 2019 levels for nearly all income groups. New bankruptcies and debt-collection proceedings are both at their lowest levels since tracking began in 1999.


Yet those encouraging trends have been at odds with the generally sour national mood, dominated by inflation concerns. U.S. consumer sentiment declined in early May to the lowest since 2011, according to the University of Michigan.


And with a potential change in the economic cycle, economic security is not evenly distributed among households. If tightening financial conditions prompt businesses to downsize, research shows that “last hired” workers will typically be the “first fired” and that Black and Hispanic workers and those with less education are particularly vulnerable.


But a broad range of economists and policymakers, including Fed Chair Jerome Powell, stress that more modest wage gains when paired with milder prices will be more sustainable for all workers, who are also consumers, in the long run.


“The Fed at this point is saying, look, we’d rather head off inflationary pressures, because if we have to slam on the brakes, then we’re going to cause a recession, and it will be worse for these underserved communities,” said Gerald Cohen, an economist at Kenan-Flagler Business School at the University of North Carolina. “It’s a challenge, because they want to pull people into the labor force. They know the way to do that is through higher wages. But higher wages can also breed higher inflation.”


For employers, too, the prospective change in the economic picture may not be spread evenly.


“Businesses with high profitability, easy access to capital, the capacity to automate, and pricing power are still eager to hire,” said Bill Adams, chief economist at Comerica Bank, a large commercial bank based in Texas. “But businesses that are seeing their margins squeezed by rising costs, like hospitality, or that are seeing demand soften, like retail, are pulling job postings as their outlook softens. And competition for workers is squeezing lower-paying employers out of the job market.”


At this point in the recovery, labor- and business-oriented economists alike believe that expanding the supply of labor may be even more important than jobs gains themselves.


There are nearly two openings for every job seeker, and several factors are unlikely to change in the near term. Some, like the large cohort of retiring baby boomers, are simply demographic.


More opportunities for women could be part of the answer. Employment of women was up 181,000 in May, yet more than 700,000 below the level in February 2020.


That lag may stem, in part, from the lapse of last year’s child tax credit expansion, argued Elizabeth Ananat, a professor of women and economics at Barnard College, who has researched the program’s effects on parental employment and labor force participation.


Another missing element of the workforce is recent immigrants. Goldman Sachs researchers said recently that because of visa restrictions and health protocols during 2020 and 2021, the total number of workers was about 1.6 million below where it would be otherwise. Legal immigration rates and refugee admissions have returned to pre-pandemic levels under the Biden administration, the analysts found, but are not enough to make up the difference.

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