Hiring in the United States is rising sharply, along with wages

Employers created 272,000 jobs last month, the Labor Department reported Friday, well above what economists had expected as hiring had gradually slowed. That’s an increase from the average of 232,000 jobs over the previous 12 months, muddying the picture of an economy that is relaxing to a more sustainable pace.

Most worrying for the Federal Reserve, which meets next week and again in July, is that wages rose 4.1% from a year ago, a sign that inflation may not yet be defeated.

“For those who thought they would see a rate cut in July, that door has largely been closed,” said Beth Ann Bovino, chief U.S. economist at US Bank. While wage increases are good for workers, she noted, persistent price increases undermine their spending power.

Shares fell shortly after the report was released, before regaining ground to trade slightly higher. Treasury yields, which track expectations for Fed rate moves, rose sharply and remained elevated throughout the trading day.

But even the picture of an accelerating job market is not entirely clear. Elsewhere in the report, the unemployment rate rose to 4%, its highest point since January 2022. This number is taken from a survey of households, which showed essentially no job growth in the last year and an increase in part-time employment, which has seen growth in part-time employment move positions to full-time.

Data from employers that generate job growth numbers tend to be more reliable, but the Household Survey has recently been more consistent with other indicators. Retail sales flattened. Gross domestic product fell significantly in the first quarter. The number of job postings is at its lowest level since 2021.

That’s why most economists expect job growth to continue to slow and the unemployment rate to rise further this year.

“Other than healthcare, we don’t see much strength in the data,” said Parul Jain, chief investment strategist at MacroFin Analytics. “Growth in 2024 is unlikely to be very strong, consumers are retreating a lot and we expect disposable income to be affected as well.”

Healthcare was the backbone of hiring for two and a half years, accounting for 18.6% of jobs added. An aging population has spurred demand, and increased insurance coverage through the Affordable Care Act has given more people access to care.

On the other hand, leisure and hospitality – which were hurt more than any other sector by Covid-19 lockdowns – took until April to regain the employment level of February 2020. Predictions of a record season of summer travel could push this number higher in coming months, though few expect job growth to surpass last year’s numbers.

United Airlines, for example, announced this week that it expects to add 10,000 jobs this year, up from 16,000 in 2023 and 15,000 the year before, as pandemic recovery transforms into organic growth.

One reason job growth beat forecasts was government employment, which has recovered quickly but was expected to collapse as federal pandemic relief funds dry up. The sector instead added 43,000 jobs in May. But a slowdown may still be in sight.

It’s already evident to Peter Finch, the superintendent of the West Valley School District, which is outside Yakima, Washington. Funding in the American Rescue Plan Act had allowed him to add staff members such as mental health counselors and tutors, but he is now no longer filling positions as people leave.

“It’s a challenging time for education,” Dr. Finch said. “If you have fewer resources, you can’t provide the same services you had in the past — that’s the reality.”

The impressive labor market run has been fueled by both a resurgence in legal immigration and an influx of millions of migrants with temporary status, many of whom have found jobs with the help of fast-track work permits. According to calculations from the WE Upjohn Institute for Employment Research, hiring fell sharply for native-born workers but held up for foreign-born workers.

That impact may also fade as President Biden’s executive order restricting asylum seekers at the southern border goes into effect.

A positive sign regarding the workforce: the percentage of people between 25 and 54 years old who work or are looking for work has reached the highest level since the beginning of 2002, equal to 83.6%. Women in that age group led the way, and in May they achieved their highest participation rate on record.

The picture is not as rosy for adults in their early 20s, whose participation rate fell in May. As employers hang on to their employees and fewer voluntarily leave, there is less room for those with little work experience, who find work at lower rates.

Workers over 55 have also not returned to the workforce in large numbers: their participation rate remains two percentage points below what it was before the pandemic. But some people have been turned away because costs have risen and pension funds have been quite unable to cover them.

Take John Refoy, 67, who retired from the Navy after 33 years as a maintenance technician