Unemployment Rate Rises to 4% Amid Solid Job Growth
Over the past three-plus years, the American consumer has endured a lot. Since February 2021, consumer prices, on average, have risen a cumulative 19%. Food prices have risen even higher, at 21%. Interest rates on many types of consumer debt, such as credit cards, bank loans, auto loans and home mortgages have stubbornly remained at, or near, 40-year highs.
Despite these obstacles, however, the U.S. labor market has steadily remained one of the more resilient components within the American economy. As recently as April 2023, the national unemployment rate was at a 50-year low of just 3.4%. Last year, the economy added, on average, a stellar 251,000 new jobs each month. But for Wall Street, the growing concern is just how long can that resiliency last?
On Friday, the U.S. Department of Labor released its monthly Employment Report for May. For Wall Street, the latest data reinforced the narrative of a still-strong, yet gradually weakening, U.S. labor market. On the positive side, 272,000 new jobs were added last month, well above Wall Street’s forecast of 182,000 and above April’s gain of 165,000. So far this year, the economy has averaged an impressive 248,000 new jobs each month. Annual wage growth also rose from 4% to 4.1%.
Of the 11 economic sectors tracked by the Department of Labor, nine posted an increase in jobs in May. The top performing sector was Education & Health Sciences, which added 86,000 new jobs last month. Rounding out the Top 5 sectors for most jobs added are Government (+43,000), Leisure & Hospitality (+42,000), Professional & Business Services (+33,000) and Trade, Transportation & Utilities (+27,000). The two sectors without job gains are Mining & Logging, which lost 4,000 jobs last month, and the Information sector, which was unchanged.
On the negative side, the unemployment rate has been steadily rising. In May, the unemployment rate further rose from 3.9% to 4%, the highest in 29 months. The number of Americans unemployed and actively seeking work increased 157,000 last month to 6.7 million, the most since November 2021. Moreover, the number of job openings has been rapidly declining.
Released each month by the Department of Labor, the Job Openings and Labor Turnover Survey reports the monthly change in job openings, hires, quits, layoffs and other employee separations. On Tuesday, the latest survey reported the number of job openings fell by 296,000 last month to 8.06 million. This is the lowest level of job openings since February 2021. Over the past 12 months, the number of job openings across the country has decreased by 1.85 million. Over the past 25 months, the number has decreased by 4.12 million.
Despite signs of continuing weakness, there isn’t a doom-and-gloom outlook for the U.S. labor market. The general consensus on Wall Street is that the unemployment rate will likely inch higher but still remain below 4.5% by year-end. In reality, the wear-and-tear of high inflation and high interest rates not only impacts consumers but also American businesses. And that strain is starting to manifest itself in their hiring practices.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
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