• Companies hire 390,000 workers, more than the 325,000 consensus forecast.
  • Average Hourly Earnings rise 5.2% as expected, down from 5.5% in April.
  • Federal Reserve rate program supported by labor market gains.
  • Equities fall on rate concerns, Treasury yields and the dollar rise.

The US labor market continued its slow progress to normality as firms hired 390,000 workers in May, bringing total nonfarm employment to just 822,000 less than in February 2020, according to the Bureau of Labor Statistics on Friday.

Unemployment was stable at 3.6%, where it has been for three months, 0.1% higher than at the start of the lockdowns and the lowest level since December 1969.  Analysts in the Reuters survey had anticipated 325,000 new workers and a 3.5% jobless rate. 

Payrolls have been ratcheting lower this year from the 561,000 monthly average in 2021. The three-month moving average for Nonfarm Payrolls (NFP) has fallen from 579,000 in January to 408,000 in May. In 2019 NFP averaged 163,000 per month.

Jobs were spread across most categories, with only two, retail and motor vehicles and parts shedding workers. Leisure and hospitality led all groups, as it has for three months, with 84,000 new workers. In the past 12 months, the area has added 199,000, more than any other category and 52% of total private hiring. Professional and business services added 75,000, transportation and warehousing rose 47,000 and construction increased 36,000. Retail trade lost 61,000 positions though it is still 159,000 above its pre-lockdown level.

Bureau of Labor Statistics

Leisure and hospitality employment was hardest hit by the lockdowns and subsequent restrictions, losing more workers than any other industry. The predominance of these workers in the hiring of the last year suggests that the economy is not creating new jobs but simply filling those left empty by the economic collapse brought on by the lockdowns. 

If that is the case, the 1.5% GDP contraction in the first quarter and the 1.3% estimate for the current three months from the Atlanta Fed, are unlikely to provide equal job creation once the losses from 2020 are filled. 

Average Hourly Earnings rose 0.3% in May and 5.2% for the year. Earnings have declined sharply from their peak of 5.6% in March. Labor Force Participation was unchanged at 62.3%, matching its post-pandemic high, though 1.1% below the February 2020 level of 63.4%.

Federal Reserve

The Employment Situation Report, the official name for the May NFP data, was no doubt a relief for Fed policy makers. Having turned the bank toward inflation after two years of focusing on job creation, payrolls are still a major sensitivity.  

A collapse in hiring would put great strains on the Fed rate hike program. With May successfully behind them, the voting members have just June’s NFP on July 8 before considering a second 0.5% hike at the July 27 bank meeting. This month’s FOMC meeting on June 15 has a  94.2% probability for a 0.5% increase. 

The decline in wage gains to 5.2% in May underlines the threat to consumer spending from rampant inflation and the danger to growth in the the United States' consumption-based economy. 

Consumer purchasing power has been eroding for 14 months.

In March CPI was 8.5% and Average Hourly Earnings (AHE) rose 5.6%, a difference of 2.9%. In April CPI was 8.3% and wages gained 5.5%, an improvement to 2.8%. The sharp fall in May AHE to 5.2% means that even if CPI comes in as expected next Friday at 8.2%, the purchasing gap will have expanded to 3.0%. With West Texas intermediate (WTI) up 10.6% in May, the potential for CPI to run hotter than expected is high. The faster the inflation rate, the greater the drain on consumer finances. 

If Americans pull back on spending before the end of June, second quarter GDP could easily become negative, meeting the traditional standard for a recession. 

How will the Fed justify a rate increase at the September 21 meeting if the US is in a recession?

Market reaction

May job creation has kept Federal Reserve rate policy on track, virtually guaranteeing a 0.5% increase this month and another in July. The credit, equity and currency markets reflected that reality.

Equities tumbled with the Dow losing 348.58 points, 2.05% to 32,899.70. The S&P 500 dropped 1.63%, 68.28 points to 4,108.54. As has been common in this stock descent, the NASDAQ shed the most, falling 2.47%, 304.16 points to 12,012.73. At Friday’s close the Dow was 9.46% lower this year, the S&P 500 13.8% and the NASDAQ 23.22%. 

Treasury returns rose across the yield curve, though they remain below the highs reached in the first week of May. The 10-year yield climbed 2.6 basis points to 2.941% and the 2-year added 1.9 points to 2.657%. 

The dollar saw gains in all the major pairs with the smallest in the USD/CAD as WTI closed at $118.77, its highest since the first week of March and the reaction to the Russian invasion of Ukraine. 


Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended Content

Recommended Content

Editors’ Picks

EUR/USD rebounds above 1.0300 as dollar resumes post-US CPI decline

EUR/USD rebounds above 1.0300 as dollar resumes post-US CPI decline

EUR/USD has jumped back above 1.0300 amid fresh weakness in the US dollar. Risk sentiment regains traction despite the US-Sino tensions and China's covid woes. Investors reassess the US inflation data and its impact on Fed rate hike expectations.


GBP/USD recaptures 1.2200 ahead UK ministers’ meeting with energy firms

GBP/USD recaptures 1.2200 ahead UK ministers’ meeting with energy firms

GBP/USD is paring losses to trade above 1.2200 in early European trading. The US dollar sees renewed selling amid the return of risk flows. The safe-haven dollar fails to capitalize on China-linked concerns. The UK ministers will meet major energy firms amid a deepening energy crisis. 


Gold: Sellers poke $1,784 support on Fed, China jitters

Gold: Sellers poke $1,784 support on Fed, China jitters

Gold price holds lower grounds around intraday bottom near $1,780, as bears attack the 50-DMA heading into Thursday’s European session. The precious metal respects the US dollar’s latest rebound amid mixed concerns surrounding the Fed's next move and China.

Gold News

Shiba Inu price edges close to a 60% breakout as bears watch in disbelief

Shiba Inu price edges close to a 60% breakout as bears watch in disbelief

Shiba Inu price shows a resilience that has not only kept it above a significant support level but also managed to slowly catalyze a move that could result in a 60% upswing.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!