Employers in the United States added 272,000 workers to their payrolls in May, the Department of Labor said Friday.
The unemployment rate ticked up to four percent.
Economists had forecast payrolls would grow by 182,000 and the unemployment rate would hold steady at the prior month’s 3.9 percent.
Prior to the most recent report, the economy has been adding an average of 242,000 jobs per month. The private sector has averaged 197,000.
The hotter-than-expected jobs number is likely to push off hopes for rate cuts until the end of this year or into next year.
Average hourly earnings, a closely watched indicator of inflation, rose 0.4 percent compared with the April, twice as fast as the previous month and higher than the 0.3 percent expected. Compared with a year ago, wages are up 4.1 percent, an acceleration from the 3.9 percent year-over-year increase in April. Economists had expected this to be unchanged.
The April estimate was revised down by 10,000 to 165,000 and the March estimate was revised down by 5,000 to 310,000.
Last December, the Federal Reserve said it was probably through hiking interest rates and officials projected they would cut rates three times in 2024. Prices in the bond and derivatives markets implied that the Fed would cut rates by as many as six times beginning with the March meeting. After the Fed surprised many investors by indicating in January that it would not be ready to cut at its March meeting, many investors believed cuts would begin at the next meeting in May.
Stronger inflation reports for the first three months of the year dashed hope for a rate cut early this year. Just prior to the release of the May jobs numbers, the futures market implied almost no chance of a rate cut at the Fed’s meeting next week, one-in-five odds of a rate cut in July, a 68 percent chance of a cut in September, an 80 percent chance of a cut in November, and an 94 percent chance of a December cut.
The Fed typically cuts rates when the economy appears to be weakening. Although growth was very strong last year, especially in the second half of the year, economists believed that the rate hikes the Fed had implemented from March of 2022 through July of 2023 would become a significant drag on growth and the labor market this year. In the first quarter of this year, growth slowed to a 1.3 percent pace.
Some Democrat politicians, progressive economists, and Wall Street analysts have said that the Fed is risking an unnecessary recession by holding back on rate cuts. Fed officials, including chairman Jerome Powell, have insisted that the strength of the labor market and the overall economy gives them room to be patient.
