US Added 172,000 Jobs in May. What It Means for the Economy.

U.S. employers added 172,000 jobs in May, and the unemployment rate was steady at 4.3%, the Labor Department said June 5, additional confirmation of an economy that continues to deliver positive surprises.

Job gains were concentrated in leisure and hospitality, local government, and health care. Average hourly earnings were up 0.3%, an acceleration from April. The report trounced analysts’ expectations of an 85,000 gain.

Stock futures were little changed after the report.

Why Is the Jobs Report So Important?

Investors, economists, financial analysts, and all kinds of policymakers consider the Labor Department’s first-Friday jobs report one of the critical keys for understanding the U.S. economy.

“It helps shape the outlook for wages, consumer confidence and the Federal Reserve’s next steps,” ConnectOne Bank Founder and CEO Frank Sorrentino said in an email to USA TODAY before the release of the report.

Professionals have had a tough time gauging the economy in recent months. Measures of consumer sentiment are at all-time lows, even though employment has been stable, if not blockbuster. Inflation has been running hot for much longer than most forecasters had expected, and has worsened this year amid the Iran War, yet Americans continue to spend.

“For households, the key questions are what this means for job security, income growth, borrowing costs and monthly budgets,” Sorrentino added. Despite all the implications for fiscal and monetary policy, he said, “Consumers should stay focused on their own financial picture and remain thoughtful about spending, debt and savings.”

How Strong Has the Job Market Been?

Data released before Friday’s report suggested the job market was finding its footing.

Among other things, the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS), released June 2, showed openings rose to the highest level in nearly two years.

In April, the most growth was seen in professional and business services, which had a gain of 668,000 jobs, a record going back to the origins of the report in 2000, said Ken Kim, a senior economist at KPMG, in an analysis.

Other measurements of job market health have also been surprisingly strong. Gusto, which processes payroll for more than 500,000 small businesses, on June 2 said those firms added 83,900 net new jobs last month, the fourth consecutive month of gains.

And payroll processor ADP said 122,000 new private-sector jobs were added in May in its June 3 report. ADP’s track record in predicting the Labor Department’s report has been imperfect in the past, however.

“The labor market has shown signs of cooling in some areas, but from what we see on Main Street, many businesses are still operating, hiring selectively, investing cautiously and adapting to higher costs. That points to an economy that is moderating rather than falling off a cliff,” Sorrentino said.

What Does the Jobs Report Mean for the Fed?

Because inflation has remained high and the economy continues to grow, traders have increasingly started to expect an interest rate increase, rather than a cut, this year. As of Friday morning, the CME FedWatch tool forecast a 38.5% likelihood that rates will be higher by the end of the year, and just a 2% chance that they will be lower.

“We believe the Federal Reserve will need to raise rates in the autumn,” wrote KPMG’s Kim on June 2.

Many economists expect that the central bank will take initial steps toward readying the market for such a move when it meets next, on June 17.

The Fed’s signal will come from the order in which it lists the risks to the economy in its meeting statement. In recent months, policymakers have noted the need to consider “readings on labor market conditions, inflation pressures and inflation expectations.” If inflation is listed first at the June meeting, it may signal a shift in strategy.

Reach Rachel Barber at [email protected] and follow her on X @rachelbarber_.